An ethical commitment to adapt the business

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.

Purpose

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. The head of the Regulatory Compliance, Regulations and Corporate Governance Division reports to the Audit and Regulatory Compliance Committee of Bankinter’s board of directors. It is attached to the 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 Risks area, and the Legal Counsel department.

In particular, it serves on the following bodies of the Bank:

• Regulatory Compliance Committee. This is the senior management body that monitors the Bank’s compliance policies according to the bylaws of the Regulatory Compliance function. The committee executes the policies in relation to the regulatory and regulatory compliance matters that are established by the audit and regulatory compliance committee of the board of directors.
• The products committee. This committee approves the launch, modification or cancellation of products and services offered to customers. In 2019, new approval and review procedures for the Group's products and services were included in the internal rules and regulations. The objective, in addition to complying with the regulatory requirements, is to ensure that the products and services are directed at the right target audience and that they offer sufficient quality and control guarantees.
• The internal control body. Establishes, and ensures compliance with, antimoney laundering and terrorist financing policies, according to Law 10/2010 and its regulatory implementation.

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.

Regulatory map

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 cross border 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.

Two main areas

Under this regulatory and institutional framework, the Bank developed the two basic areas of the compliance function in 2019:

• Control and advisory tasks in the area of regulatory compliance for investment products. Bankinter has implemented a methodology based on the risk approach that enables the risk of default in each area of activity to be assessed in relation to the provision of investment and banking services.
• Prevention of money laundering and terrorist financing. 2019 featured reinforcement of control frameworks in terms of both KYC (know your customer) and controls applying to international financial sanctions and correspondent banking. 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 2019, Bankinter developed the control measures needed to adapt to the regulation and aligned the corresponding risk with its risk appetite framework, in addition to the IT tools for this function.

Another major advance was the implementation of a methodology and culture of compliance common to all Group entities, in the regulatory area and the management of regulatory risk, product governance and the prevention of money laundering.

Outlook

In 2020, the Bank’s adaptation to regulations on payment services and advertising for banking services and products will be complete. It 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 the purposes of money laundering or terrorist financing.

Further, the adaptation of Royal Decree Law 11/2018, which transposes the 4th European Directive on the prevention of money laundering and terrorist financing and the due diligence measures with customers will be updated, in addition to the continuous monitoring of the business relationship, according to the legally established terms.

Other regulatory requirements for 2020 deriving from the Insurance Distribution Directive (IDD) and European Union Action Plan for Sustainable Finances.