The Bank must achieve its business objectives while complying not only with regulations, but also the best practices and standards required of its operations. This issue therefore represents not only a legal obligation for Bankinter, but also an ethical commitment.
This commitment also serves as an opportunity to reflect for Bankinter to become a leading institution adapted to the new reality of the finance industry, which is subject to the need to change relationships with customers and adjust the Bank's business model in line with new financial consumption habits and multiple reporting requirements.
The growing importance of regulatory compliance has been underlined with the entry into force, as a result of the economic and financial crisis, of several highly complex regulations and the launch of the new supervisory architecture, obliging the Bank to strengthen its available resources
The purpose of the compliance function is to assess and provide guidelines for the lines of business that help define its strategy, ensuring compliance with applicable legislation at all times. With this purpose, all areas in the compliance functions go to great lengths to train commercial staff.
The regulatory compliance function is integrated within Bankinter through an internal institutional framework. In 2020, the chief regulatory compliance and corporate governance officer reported to the audit and regulatory compliance committee of Bankinter’s board of directors. They were attached to the office of the Bank’s Office of the General Secretary, through which it is integrated with the rest of the organisation, thereby guaranteeing close cooperation with the rest of the senior management areas, especially the Risk area, and the Legal department, within all their areas of authority.
In particular, it serves on the following bodies of the Bank:
This organisational structure enables the Bank to adequately manage the risk of failing to comply with regulations, which also entails significant reputational risk, with a potentially adverse impact on relations with customers, markets, employees and the authorities. In particular, failure to comply with regulations may lead to sanctions, damages or cancellation of contracts, thereby hurting the Bank's image.
On 16 December 2020, Bankinter's board of directors, through its appointments and corporate governance committee, was informed of the decision to create, within the Bank's organisation, a new Control and Compliance Department that integrates the areas in charge of the following second lines of control: i) Risk Control, ii) Financial Control, iii) Network Operations Control, and iv) Regulatory Compliance and Anti-Money Laundering.
The aims of this decision are to standardise the information systems in all of these second-level control areas, provide a single risk map, and guarantee greater and better control by ensuring more interaction with the areas. This will deliver greater efficiency and optimise resources, as well as providing this second line of control with the necessary independence to carry out its duties in line with best practices in this area. The decision is effective since 1 January 2021.
In 2018, the Bankinter Group assigned the management of regulatory change competencies to the Regulatory Compliance Division through the Regulation area. This decision was ratified throughout 2019, facilitating the early detection of the possible impact of regulatory changes and reducing the corresponding risks. Therefore, the Regulation area drew up a three-year regulatory map that serves as the basis for the regulatory strategy. The management of the regulatory change was carried out transversally throughout the year, participating in different projects that required the adaptation of Group activities or processes. These include the new regulation on basic payment accounts, the Real Estate Credit Act, the regulation governing transparency in payment services and crossborder payments with foreign exchange, prevention of money laundering, and other changes in the area of insurance, outsourcing and advertising for banking products and services.
The entry into force in 2019 of the rules for transposing the MiFID II directive stands out. This was instrumented as an amendment to Regulation 217/2008 on investment service firms, which required the Group to seek advice on the adaption work, analysis and decisions. The deployment of the PSD2 payment service regulation required changes to be made in processes and technologies to ensure the protection and security of the transactions, and their users.
In another area of activity, Bankinter's adaptation to the new Real Estate Credit Act should be noted, which strengthened customer protection in relation to credits for the acquisition of residential property. Regulatory Compliance also played a direct role in the adaptation to the new obligations, not only with regard to customers but also in the accreditation of personnel directly involved in providing the service.
Another major regulatory change derived from the Regulation of Benchmark Indices, which includes changes to the indices (transition from Eonia to Ester, new Euribor methodology and different IBOR substitutions).
The Regulatory Compliance unit took part in the project to adapt to the new regulations included in the legislative package of the European Commission's Sustainable Finance Action Plan, which aims to strengthen the role of finance to build an economy that allows environmental and social objectives to be achieved.
Beyond purely regulatory changes, the growing supervisory and interpretation activity with regard to recently implemented rules, such as MiFID II and PRIIPS, stands out.
Under this regulatory and institutional framework, the Bank developed the two basic areas of the compliance function in 2020:
The Money Laundering Prevention area, which is part of the Control and Compliance Unit, is responsible for ensuring compliance with the Bank's policies and procedures for preventing money laundering and terrorist financing. Its aim is to guarantee adequate coverage of the risks arising from money laundering and terrorist financing, complying with all related legislation
Preventing these practices is a strategic objective for Bankinter Group and an ethical commitment to society at large, reflected in compliance with international standards and best practices in the area. In line with this objective, in 2020 Bankinter and its subsidiaries continued to develop the control measures needed to comply with the regulations. It implemented an AML/CTF risk map, defined the AML/CTF risk appetite framework aligned with the Bank's framework and the IT tools for this function.
The current state of affairs caused by COVID has led to the approval and publication of reports and guides to identify risks and changes in customer behaviour and criminal activity involving money laundering and terrorism financing (such as the counterfeiting of pharmaceutical and medical products, cybercrime, investment fraud, etc.) as a result of the pandemic, in addition to assessing its impact on the fight against AML/CTF offences and the measures implemented. The second-line of defence control activities were reviewed for some processes.
Since 2019 the Regulatory Compliance area has become established in Bankinter Group following the implementation of a common compliance culture and methodology across all Group companies for regulatory compliance, regulatory risk management, product governance and anti-money laundering.
The main focus of attention in 2021 will be the Sustainable Finance legislative package, with the level 2 regulatory developments expected to see the light of day. Bankinter Group is committed to and supports this legislative package, which will strengthen Europe's resilience.
We will also see flexibility in some aspects of the Markets in Financial Instruments Directive, resulting from its modification as a result of the Quick Fix in response to the COVID-19 pandemic.
The ending of LIBOR at the end of 2021 will also require special attention. This year will also see completion of the Bank’s adaptation to the regulations on advertising for banking services and products. The company must also adapt to the regulatory framework deriving from the transposition of Directive 2017/828, as regards the encouragement of long-term shareholder engagement, and Directive 2015/849 on the prevention of the use of the financial system for money laundering and terrorist financing. Management of the coordinated control of the second lines of defence will also be developed and the design of a definitive model will be completed. This will allow the integration of a process for updating the due diligence on customers at all risk levels, according to the schedule established for this.
Other regulatory requirements planned for 2021 include the ESMA guidelines on the requirements of the regulatory compliance function under MiFID II, as a crucial unit for the identification, evaluation, supervision and reporting of entities' compliance risk. This function is strengthened under MiFID II, as this reduces compliance risk while making it easier for the competent authorities to exercise their powers in an effective way. The position of this function in the entities will be reinforced by the clear establishment of its control, analysis and advisory powers, the requirements of the organisational structure, and by its competences, knowledge, skills and authority.
The inclusion by the EBA of money laundering risk in the SREP guidelines at the end of 2021 will also be significant. This was anticipated in the expectations addressed to prudential supervisors at the end of 2020, encouraging them to use key monitoring indicators obtained from the information disclosed by entities for prudential reasons, and to review and consider potential indicators of weaknesses in the prevention of money laundering due to weaknesses or operational, credit, financing or liquidity risks
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