Application of the Dutch Banking Code by the subsidiaries of ABN AMRO Bank N.V. over 2017.

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1 Application of the Dutch Banking Code by the subsidiaries of ABN AMRO Bank N.V. over ABN AMRO Bank N.V. (ABN AMRO) has four subsidiaries that have a banking license granted by De Nederlandsche Bank N.V. (DNB), namely ABN AMRO Groenbank B.V. (Groenbank), ABN AMRO Hypotheken Groep B.V. (AAHG), ABN AMRO Clearing Bank N.V. (AACB) and International Card Services B.V. (ICS). These subsidiaries are referred to below as the subsidiaries. In essence, ABN AMRO applies the principles of the Dutch Banking Code on a consolidated basis to all entities within its group by developing group-wide guidelines and standards to promote compliance with internal and external rules and best practice provisions. For example, to ensure consistency templates are available for the subsidiaries that deal with e.g. shareholder resolutions, rules of procedure for the Managing and Supervisory Boards and questionnaires for the yearly self-evaluation of the Managing and Supervisory Boards. However, in view of the differences between the activities, organisation and risk management of the subsidiaries, the application of group-wide guidelines and standards can differ from one subsidiary to another. How the principles of the Dutch Banking Code are applied by the subsidiaries is explained below in relation to each part of the Code. The text is updated annually to take account of the continuing efforts of ABN AMRO and the subsidiaries to ensure their compliance with the principles of the Dutch Banking Code. Sound and ethical operational management of the subsidiaries ABN AMRO applies these principles mainly on a consolidated basis to all entities within the group. The answers given by ABN AMRO in the overview Application of Banking Code by ABN AMRO [link] also therefore largely apply by analogy to the subsidiaries. An example of the consolidated implementation of the principles of the Dutch Banking Code on sound and ethical operational management is the application of core values and cultural principles adopted by ABN AMRO. The cultural principles serve as a guide for the conduct of all employees, including those of the

2 subsidiaries. In addition, the aforementioned principles can be further specified by the subsidiaries. ICS has, for instance, reviewed its gift and entertainment policy in Furthermore, the compliance department of ICS organized several ethics awareness sessions for the upper management level in Yet another example is that staff members of AACB are encouraged by their managers to regularly consult the information on the intranet of AACB that is related to conducting operations in an ethical way. Naturally, all members of the Managing Boards and Supervisory Boards of the subsidiaries have taken the banker s oath. The criteria underlying the banker s oath form part of the core values of ABN AMRO (which have in turn been translated into the cultural principles referred to above). In carrying out their duties, these board members disseminate these standards and thus set an example for their staff. Moreover, the banker s oath has been or will be taken by the employees of the subsidiaries to which the Dutch Banking Code is applicable. By taking the banker s oath the members of the Managing Boards and Supervisory Boards of the subsidiaries and the employees of and other persons working for the subsidiaries affirm their commitment to upholding high standards of ethical behavior. They become personally responsible, in the same way as those of ABN AMRO, for compliance with the rules of conduct and can be held accountable for non-compliance. Good IT infrastructure has also been described by the Managing Boards of the subsidiaries as essential to the proper functioning of their businesses. For the most part, AAHG and Groenbank use the IT infrastructure of ABN AMRO. By contrast, ICS and AACB have put in place effective IT infrastructure within their own organisations with fully-fledged IT processes, the appropriate tests and controls, robust technical solutions and proper staff training. The subsidiaries are responsible for the general course of business and continuity thereof and the Managing Board of each subsidiary from time to time adopts its own strategy document (within the overall context of the group strategy) dealing with the specific situation of its subsidiary. One of the matters covered in the strategy document is the position of the subsidiary within the society in which it operates. In other cases, however, there is a more shared responsibility. This is true, for example, for the manner in which the governance structure of the subsidiaries is organised. Each subsidiary has a Managing Board and Supervisory Board with its own responsibility for organising an effective governance structure, including adequate provision for the Compliance and Risk function, whether or not on a consolidated basis. In this way the subsidiaries arrange for good, independent management as well as for supervision of that management. Where desirable, 2 of 7

3 use can also be made of the knowledge and expertise within ABN AMRO. However, the independent role of the second line of defence of the subsidiaries is always respected. For example, ICS has agreed a charter with ABN AMRO to establish that the Compliance and Risk functions of ICS are able to make their own judgements and decisions independently. This way, it is safeguarded that third party clients are always served to their best interests. ABN AMRO is continuously engaged in strengthening its corporate governance and establishing a consistent corporate governance structure within the group. To this end it has developed guidelines for the corporate governance of the subsidiaries, which include implementation of the relevant governance principles of the Dutch Banking Code. The Managing Boards and Supervisory Boards of the subsidiaries are guided by these guidelines within the specific situation of the subsidiary. The duties and responsibilities of the Supervisory Boards and Managing Boards of the subsidiaries and the manner in which these are performed within the context of the Dutch Banking Code are explained below in more detail. Supervisory Boards of subsidiaries All four subsidiaries have a Supervisory Board. The role of the Supervisory Board is to advise and oversee the activities and policies of the Managing Board and the general affairs of the subsidiary. In doing so, the Supervisory Board is guided by the interests of the subsidiary. These interests are the sum total of all the different relevant interests, including those of the shareholder and the group interest. In this connection, each member of the Supervisory Board is aware of the social role of a bank. Among the subjects covered by the supervision of the Managing Board are the corporate strategy, achievement of objects, the structure and operation of the internal risk management and control systems, the financial reporting process, regulatory compliance, the company-shareholder relationship and corporate social responsibility issues relevant to the subsidiary. Each Supervisory Board of the respective subsidiaries has as many members as is necessary for the proper performance of its duties. In principle, the number of members varies from three to four, depending on the nature, size and complexity of the subsidiary. However, the tenure of one of the Supervisory Board members at ICS was ended per 1 October As a result, the Supervisory Board of ICS consisted temporarily of two members. In general, each Supervisory Board consists of senior managers of ABN AMRO, who are appointed by virtue of their banking expertise and professional and personal skill-set. In the case of AAHG, the employment contract of one of its Supervisory Board members at ABN AMRO was terminated end However, the member continues to serve on the Supervisory Board of AAHG. Members of the Supervisory Board of the subsidiaries do not receive separate remuneration for their work. Depending on 3 of 7

4 the nature of the subsidiary, various business units and disciplines within ABN AMRO such as Risk, Compliance, Finance and Strategy & Sustainability are represented in the Supervisory Board. All Supervisory Board members are both willing and able to make sufficient time available for the proper discharge of their duties. By doing so, they adopt a properly critical stance and are able to act independently and make a balanced assessment. In addition, each of them must fulfil the fit and proper person requirements as set by the ECB. Each Supervisory Board must have sufficient knowledge, expertise and experience to carry out its duties properly. For this purpose, a lifelong learning programme has been established at group level. This program deals from time to time with the lifelong learning subjects as mentioned in the Dutch Banking Code. Topics that were covered as part of the lifelong learning programme in 2017 for example are data management, cyber security, IFRS 9, Basel IV and digitalisation. As the subsidiaries are part of the ABN AMRO organisation, most of the members of the Supervisory Boards (except for one Supervisory Board member of AAHG, as mentioned above) are part of the senior management of ABN AMRO and are appraised annually by ABN AMRO. The Supervisory Boards also, in principle, carry out an annual evaluation of their own functioning and that of their individual members. In the case of ICS, however, the 2017 evaluation will be carried out in March 2018 and this will be done under external supervision. Furthermore, the Supervisory Board of AAHG decided not to discuss its own functioning in 2017 due to several changes in the composition of the board. One of the subjects covered in the evaluation is the effectiveness of the lifelong learning programme. In principle, the evaluation of the functioning of the Supervisory Boards of the subsidiaries is carried out once every three years under external supervision. All Supervisory Boards of the subsidiaries have set up committees. For example, AACB has established a combined audit, risk and compliance committee, and AAHG and Groenbank have a combined audit and risk committee. Since the start of 2016 ICS also has a combined audit and risk committee that frequently discusses the risk appetite and any deviations thereof. These committees are governed by rules of procedures that each subsidiary itself develops and adopts. Through this, it is assured that the members of the various committees possess the adequate skill set to perform their duties, as the rules of procedure prescribe specific requirements regarding competence and experience. Managing Boards of subsidiaries The Managing Board of each subsidiary is collectively responsible for managing the company and the general affairs of its business. It has as many members as necessary for the proper performance of its duties. The number varies from two to five, depending on the nature, scope and complexity of the respective subsidiary. 4 of 7

5 Each Managing Board of the four subsidiaries has sufficient knowledge, expertise and experience to perform its duties properly. Additionally, all members have a thorough knowledge of the financial services industry, the banking industry, the social functions of the bank and the risks inherent to the particular activities of the subsidiary. Moreover, each of them fulfils the fit and proper person requirements as set by the ECB. The Dutch Banking Code obligation to appoint a Chief Risk Officer (CRO) is applied by ABN AMRO for AAHG and Groenbank at group level over However, AAHG appointed its own CRO in January AACB has appointed its own CRO for several years, and ICS has assigned the risk management function to the Chief Risk and Financial Officer (CFRO) member of the Managing Board who has no commercial responsibility (see also the section on Subsidiaries risk policy). Legal, Compliance and Risk of ICS report directly to its CRFO. In performing its duties, each Managing Board is guided by the interests and continuity of the subsidiary and its activities, as well as by the interests of ABN AMRO as a whole. The Executive Board of ABN AMRO is responsible for making a balanced assessment of the relevant interests of clients and all other interested parties. In making this assessment, each member of the Executive Board of ABN AMRO is aware of the social role of a bank. Subsidiaries are also expected to be guided independently by the interests of the client and to fulfil their duty of care towards the client. They are also expected to do this within the strategy as formulated by ABN AMRO, including the principle of client centricity. The members of the subsidiaries Managing Boards must fulfil the fit and proper person requirements under the Financial Supervision Act at all times. This is one reason why a lifelong learning programme has been established at group level, for example for the members of the subsidiaries Managing Boards. From time to time, the lifelong learning subjects are being dealt with as mentioned in the Dutch Banking Code. Topics that were covered as part of the lifelong learning programme in 2017 for example are data management, cyber security, IFRS 9, Basel IV and digitalisation. Where necessary, individual Managing Board members can also take training courses specifically designed to broaden or deepen their expertise in their specific area of responsibility. For instance, the members of the Managing Board of AACB visited the United States in 2017 to get acquainted with the latest innovations in the financial industry. Subdidiaries risk policy In keeping with the principles of the Dutch Banking Code, ABN AMRO determines the risk appetite, risk policy and risk management at group level. The Supervisory Board of ABN AMRO is responsible for approving the risk appetite of the group as a whole and regularly assesses at a strategic level whether the business activities of each individual subsidiary are compatible with the defined risk appetite. The 5 of 7

6 Executive Board of ABN AMRO and its Chief Risk Officer (CRO) are also responsible in part for the risk policy pursued by the subsidiaries. This is why not every Supervisory Board of a subsidiary has set up a separate risk committee or appointed a CRO to the Managing Board. However, AACB has appointed its own CRO who is also acting Managing Board member, and ICS has assigned the risk management function to a member of the managing board, the CRFO, who has no commercial responsibility. ABN AMRO has established a product approval and evaluation process. All new products of subsidiaries are routed through either this process or a comparable one at the level of the subsidiary that is in line with the group-wide policy. How ABN AMRO implements the Dutch Banking Code principles relating to risk management is explained in more detail in Application of Banking Code by ABN AMRO [link]. Regardless of the group s policy on risk appetite, risk policy and risk management, the subsidiaries also have their own responsibility in these areas. The members of the subsidiary s Supervisory Board pay specific attention to the company s risk management, within the framework formulated at group level. The Managing Board of the subsidiary makes a balanced assessment of the commercial interests and the risks to be run, taking account of the risk appetite formulated at group level. Audit at subsidiaries ABN AMRO is responsible at group level for carrying out systematic checks on the management of risks connected with the business activities of the subsidiaries. Within ABN AMRO, Group Audit is responsible for the auditing of the group as a whole, while an external auditor is engaged to assess the financial reporting of the group. Consultations at group level are held between Group Audit, the external auditor and the Audit Committee of ABN AMRO s Supervisory Board. Important findings about the subsidiaries are also discussed in those consultations. Group Audit also discusses all audit findings at subsidiary level with members of the Managing Board and Supervisory Board of all subsidiaries. As part of the three lines of defence model, ICS also applies the auditing principles of the Dutch Banking Code independently in relation to some aspects. For this purpose, ICS has established an internal audit function which reports directly to its Managing Board, Supervisory Board and Group Audit. Where necessary, this internal audit function can also exchange information with the external auditor and with DNB and/or the ECB. Subsidiaries remuneration policy 6 of 7

7 The employees of the subsidiaries and the members of their Managing Boards have a contract of employment with ABN AMRO and are therefore covered by ABN AMRO s collective labour agreement or by ABN AMRO s remuneration policy for the top management layer. By way of exception, the employees of ICS and one member of the Managing Board of ICS have a contract of employment with ICS itself and are covered by the collective agreement at the level of ICS. The present remuneration policy applicable to all four subsidiaries is in keeping with national and international laws and regulations on remuneration in the financial services industry and with the relevant principles of the Dutch Banking Code. The remuneration policy is detailed, restrained and sustainable and is clearly focused on the bank s long-term interests, strategy, limited risk appetite, and goals and values as well as the relevant interests of the bank s stakeholders. The remuneration policy is evaluated periodically. * * * 7 of 7