Nova KBM
 

Internal governance | NKBM

In compliance with Slovene legislation, Nova KBM has a two-tier governance system consisting of the Management Board and the Supervisory Board.

INTERNAL GOVERNANCE

In compliance with Slovene legislation, Nova KBM has a two-tier governance system consisting of the Management Board and the Supervisory Board.
Management Board
The Management Board, consisting of four members, runs the operations of Nova KBM autonomously and on its own responsibility. Management Board members are appointed for a five-year period and may be re-appointed.
 
The Management Board reports to the Supervisory Board on all matters for which the reporting obligation is prescribed by the applicable regulations. Moreover, the Management Board informs the Supervisory Board about any other matters determined by a resolution of the Supervisory Board.
 
In performing their functions, members of the Management Board shall at all times comply with the requirements of the Banking Act (hereafter: the ZBan-2) applicable to members of the Management Board, in addition to fulfilling the following duties and tasks:
  • to act in accordance with the requisite professional diligence and, in particular, to ensure that the Management Board carries out its work in accordance with the provisions of the ZBan-2
  • to act in an open, fair and independent manner in order to effectively assess the decisions of the senior management concerning the running of Nova KBM
  • to act in accordance with the highest ethical standards of governance, taking into account the prevention of conflicts of interest
  • to dedicate sufficient time to their duties, so that these are carried out effectively, taking into account the requirements of the ZBan-2

In accordance with the ZBan-2, the Management Board shall set up a risk management function that reports directly to the former and that is functionally and organizationally segregated from the other functions of Nova KBM in which conflicts of interest could arise vis-à-vis the risk management function. To that end, it must take into account the nature, scope and complexity of the activities Nova KBM performs.
 
The Management Board shall establish and implement the type of internal governance arrangements set out in the ZBan-2 that facilitate the effective and prudent governance of Nova KBM based on clearly defined competences and responsibilities, and on policies and measures to prevent conflicts of interest.
 
Within the scope of its powers and duties, the Management Board is responsible for defining, adopting and regularly reviewing the strategy and policy for taking up and managing the risks to which Nova KBM is or could be exposed in its operations, including risks from the macroeconomic environment in which Nova KBM operates, taking into account the current business cycle.
 
For making decisions concerning the operations of individual segments of Nova KBM, the Management Board has appointed various committees, such as the Bank Credit Committee, the Problem Loan Committee, the Liquidity Committee, the Assets and Liabilities Committee (ALCO), the Operational Risk Committee, the Corporate Banking Committee for Active Monitoring and Recovery of Loans Outstanding to Legal Entities and Sole Proprietors, the Customer Classification Committee, and the Fit and Proper Committee (the committee responsible for assessing the suitability of officers holding key positions, including members of the management and supervisory bodies).
 
Further details concerning the composition of the Management Board as well as the composition and work of Management Board committees are set out in the 2017 Annual Report of the Nova KBM Group and Nova KBM, and in the  document entitled 'Disclosures made by Nova KBM on the basis of its consolidated financial position for the year 2017'.
Supervisory Board
In accordance with Nova KBM´s Articles of Association, the Supervisory Board is composed of six members, who are appointed by the Nova KBM Shareholders´ Meeting.

The Supervisory Board exercises the powers vested in it by the Companies Act (hereafter: the ZGD-1), the ZBan-2 and other regulations. Its work is regulated by the Rules of Procedure of the Supervisory Board.

During the period of performing their functions, members of the Supervisory Board shall at all times fulfil the requirements applicable to their appointment, while at the same time acting in accordance with the requisite professional diligence and, in particular, ensuring that the Supervisory Board carries out its work in accordance with the provisions of the applicable regulations.

Further details concerning the work of the Supervisory Board are set out in the 2017 Annual Report of the Nova KBM Group and Nova KBM.
Supervisory Board committees
 In accordance with the relevant provisions of the ZGD-1 and the ZBan-2, the Supervisory Board has established the following committees: the Audit Committee, the Remuneration Committee, the Nomination Committee, the Risk Committee, and the Credit Board/Committee.

Supervisory Board committees are consultative bodies of the Supervisory Board. Each of them has at least three members, who are at the same time members of the Supervisory Board. Supervisory Board committees carry out their work in accordance with the respective Rules of Procedure, and typically meet four times a year or as required.

Audit Committee

Pursuant to the ZGD-1, the responsibilities of the Audit Committee are as follows:
  • to monitor the financial reporting procedures and make proposals and recommendations to ensure their integrity
  • to monitor the efficiency and effectiveness of Nova KBM´s internal controls, the internal audit function, if any, and risk management systems 
  • to monitor the statutory audit of annual and consolidated financial statements, in particular the effectiveness of the statutory audit, taking into account all the findings and conclusions of the competent authority
  • to examine and monitor the independence of the auditor appointed for the review of the annual report, especially regarding the provision of additional non-audit services
  • to monitor the auditor selection process and propose to the Supervisory Board the appointment of the auditor for the review of the annual report
  • to monitor the integrity of financial information provided by Nova KBM
  • to assess the composition of the annual report, including drafting the proposal for the Supervisory Board
  • to participate in determining the major areas subject to audit
  • to participate in the preparation of the agreement between the auditor and Nova KBM, which must not include any provision that would restrict the Shareholders´ Meeting´s choice regarding the appointment of the auditor. Any such provisions would be null and void
  • to report to the Supervisory Board on the results of the statutory audit, including notes on how the statutory audit contributed to the integrity of financial reporting and what the role of the Audit Committee was in the process
  • to carry out other tasks as stipulated by Nova KBM´s Articles of Association or a resolution of the Supervisory Board
  • to cooperate with the auditor in auditing Nova KBM´s annual report, in particular by exchanging information about the major audit-related issues
  • to cooperate with the internal auditor, in particular by exchanging information about the major internal audit-related issues
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Remuneration Committee

In accordance with the ZBan-2, the Remuneration Committee has the following responsibilities:
  • to carry out technical and independent assessments of remuneration policies and practices, and to formulate initiatives for measures on the basis thereof with the aim of improving the management of the risks to which Nova KBM is exposed, as well as its capital and liquidity
  • to draw up proposals for decisions by the governing bodies regarding the remuneration of employees, including remuneration that impacts the risks to which Nova KBM is exposed, and the management thereof
  • to control the remuneration of members of senior management who perform risk management functions and ensure the compliance of operations
 
Nomination Committee

In accordance with the ZBan-2, the Nomination Committee has the following responsibilities:
  • to select and recommend to the Supervisory Board candidates for membership of the Management Board, and to select and recommend to the Shareholders´ Meeting candidates for membership of the Supervisory Board, taking into account policies on the selection of suitable candidates, as set out in the ZBan-2
  • to define the tasks and required conditions for a specific appointment, including an assessment of the time envisaged for the performance of the function in question
  • to define the target number of an under-represented gender on the Management Board or the Supervisory Board, and to draw up an associated policy on how to increase the number of members of an under-represented gender to achieve that target
  • to assess, at least once a year, the size, structure and performance of the Management and Supervisory Boards, and to draw up a report detailing potential changes
  • to assess, at least once a year, the knowledge, skills and experience of individual members of the Management and Supervisory Boards, and of the governing system as a whole, and to report to the Management and Supervisory Boards accordingly
  • to regularly review the Management Board´s policy on the selection and appointment of suitable candidates for Nova KBM´s senior management positions, and to draw up a report detailing potential changes
  • to actively contribute to the fulfilment of Nova KBM´s obligation to adopt appropriate policies on the assessment of the suitability of members of Nova KBM´s governing bodies

Risk Committee

In accordance with the ZBan-2, the Risk Committee has the following responsibilities:
  • to provide advice regarding Nova KBM´s current and future propensity to assume risks and regarding its risk management strategy, and to provide assistance in the supervision of senior management with respect to the implementation of the risk management strategy
  • to verify, without encroaching on the tasks of the Remuneration Committee, whether the forms of stimulation provided for by the remuneration system take into account the risks, capital, liquidity and likelihood and allocation of Nova KBM´s revenue, with the aim of formulating prudent remuneration policies and practices
  • to verify whether the prices of Nova KBM´s products are fully compatible with the adopted business model and risk management strategy, and to propose measures for the elimination of identified discrepancies and to submit those proposals to the Management and Supervisory Boards
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Credit Board/Committee

In accordance with Nova KBM´s Articles of Association, the Supervisory Board has set up the Credit Board/Committee, which is responsible for giving consent to the Management Board for concluding any legal transaction in respect of which the Supervisory Board has adopted a special resolution.
Independent control functions
Nova KBM has in place the following independent control functions: an internal audit function, a compliance function, an anti-money laundering and counter-terrorist financing function, and a risk management function.

Internal Audit Centre 

The Internal Audit Centre of Nova KBM exercises its powers and performs its work in compliance with the ZBan-2, the International Standards for the Professional Practice of Internal Auditing, the Code of Ethics of Internal Auditors, and the Code of Principles of Internal Auditing. Its duties and competences are set out in the Charter of Internal Auditing, while the method of its work is regulated by the Rules Governing the Work of Internal Auditors. The Internal Audit Centre is responsible for coordinating the work of all internal auditors of the Nova KBM Group, and for the transfer of good practice. The internal auditors must give assurance of their organizational independence. The main duty of the Internal Audit Centre is to give the Management and Supervisory Boards an impartial assurance with respect to the efficiency of risk management, taking into consideration an assessment of whether the key risks are properly managed and the system of internal controls is effectively implemented.

Compliance Office 

As part of its recent organizational changes, and in accordance with the provisions of the ZBan-2, Nova KBM has set up the Compliance Office as an independent organizational unit that reports directly to the Management Board and is functionally and organizationally segregated from the other functions of Nova KBM in which conflicts of interest could arise vis-à-vis the Compliance Office, with the head of the Compliance Office having direct access to both the Supervisory Board and the Supervisory Board committees.
 
As stipulated in the ZBan-2, the main task of the Compliance Office is to identify compliance risks to which Nova KBM is or could be exposed in its operations due to the breach of valid regulations or requirements of the Bank of Slovenia or the European Central Bank, or due to the breach of valid agreements, prescribed practices or ethical standards that could impact Nova KBM´s revenues, capital or reputation. The Compliance Office reports its findings to the Management and Supervisory Boards and, if appropriate, to the Risk Management Division.

Anti-Money Laundering and Counter-Terrorist Financing Office 

In Nova KBM, activities and measures with respect to the prevention of money laundering and terrorist financing are carried out by the Anti-Money Laundering and Counter-Terrorist Financing Office in accordance with the Prevention of Money Laundering and Terrorist Financing Act.

Nova KBM has also set up a system for reporting any breach of applicable regulations and any suspicion of harmful practices undertaken by employees (whistleblowing). The system referred to above makes it possible for Nova KBM employees to internally report any breach of applicable regulations or internal rules via independent and autonomous reporting lines. Nova KBM has adopted measures to prevent any retaliatory acts, discrimination or other forms of inappropriate treatment of employees who have reported breaches.
Disclosure of the Remuneration Policy

Disclosure of Remuneration Policy under Article 88 of ZBan-2


The employee incentive system at Nova KBM d.d. is governed by the Remuneration Policy and the Rules on the performance management process in Nova KBM d.d.

The Bank follows remuneration policies on the solo, sub-consolidated and consolidated levels, inclusive of subsidiaries that do not fall under Directive 2013/36/EU.


The Remuneration Policy defines all components of employee remuneration, including pension policy, and ensures that payments to employees do not promote or incentivize excessive risk taking or consumer deception in the sale of banking products.

The Remuneration Policy for Bank employees is aligned with the aims and objectives of the Bank’s business strategy and Risk Management Strategy, corporate culture and values, long-term interests of the Bank and measures for the prevention of conflict of interest. The Policy does not promote or incentivize excessive risk taking.

The maximum fixed-to-variable remuneration component ratio is 1:1.

The variable remuneration of employees is based on Bank performance, branch unit performance and employee performance and accounts for risks taken on by the Bank.

 

When adopting the Remuneration Policy, the Bank identified, as per Commission Delegated Regulation (EU) No 604/2014 and additional internal rules and criteria, staff whose professional activities have a material impact on the Bank’s risk profile, and took a self-assessment.

The Identified Staff category, i.e. staff whose professional activities have a material impact on the Bank’s risk profile, comprises as follows:

- Chairman and members of the Bank Supervisory Board,

- Chairman and members of the Bank Management Board

- Procurators;

- Director of Compliance;

- Director of Internal Audit;

- Director of Legal;

- Director of Accounting;

- Director of HR Development;

- Director of Workout;

- Director of Anti-Money Laundering;

- Director of Large Corporates;

- Director of Retail Banking;

- Director of Treasury;

- Director of Controlling;

- Director of Underwriting;

- Director of IT;

- Director of Banking Operations;

- Director of Organization and Process Management;

- Director of Strategic Risk Management;

- Director of Business Analytics, Planning and Unit Profitability;

- Members of Bank Credit Committee (BCC);

- Members of Problem Loan Committee (PLC);

- Members of International Investments and Lending Committee (ILLC);

- Members of Asset-Liability Committee (ALCO);

- Members of Liquidity Committee.

 

The Appendix to the Remuneration Policy, which is an integral part of the Policy, lays down performance evaluation criteria underlying variable remuneration, the variable-to-fixed remuneration component ratio, deferred payments, and payment by way of ordinary or preference shares of the bank, or by way of share-related instruments or equivalent non-cash instruments – deferral scheme, as well and maluses and clawbacks for identified staff whose professional activities have a material impact on the Bank’s risk profile.

In setting up the Remuneration Policy, the Bank applied the remuneration floor to determine variable pay, as per Bank of Slovenia Guidelines on the application of the principle of proportionality in the implementation of remuneration policies of 22 November 2016. The Bank defined the variable remuneration floor in terms of Points (7) and (8) Article 170(1) of Zban-2 in a manner where the variable remuneration of identified staff that does not exceed EUR 50,000 gross annually does not fall under the cited ZBan-2 Article. Restrictions under Points (7) and (8) Article 170(1) of Zban-2 (remuneration by way of shares or equivalent non-cash instruments and deferral of a portion of variable remuneration) therefore do not apply to variable remuneration belonging to the floor bracket.

 

The Bank requests of identified staff not to use personal hedging strategies or remuneration- and liability-related insurance to undermine the risk alignment effects embedded in their variable remuneration.

Policy on the Selection of Suitable Candidates for a Management Body
Nova KBM has drafted and is implementing its Policy on the Selection of Suitable Candidates for a Management Body (hereafter: the Policy) in accordance with the relevant provisions of the applicable Banking Act (ZBan-2). The Policy, which has been approved by the Nova KBM Supervisory Board, substantially addresses issues relating to the selection of candidates for membership of a Nova KBM management body (either the Supervisory Board or the Management Board).

The Policy takes account of the provision of the first paragraph of Article 67 of the Bank of Slovenia´s Regulation on Internal Governance Arrangements, the Management Body and the Internal Capital Adequacy Assessment Process for Banks and Savings Banks (hereafter: the Regulation), pursuant to which the Supervisory Board must comply with the provisions of the Policy when appointing and dismissing members of the Management Board. In accordance with Point 1 of the first paragraph of Article 68 of the Regulation, the person proposing the candidates for membership of the Supervisory Board must present the candidates to the Shareholders´ Meeting before the latter makes a decision on the appointment of Supervisory Board members. Such a presentation must, among other things, include a statement that the candidate selection process has been carried out in compliance with the Policy.

Given that members of a Nova KBM management body have a crucial role in safeguarding the interests of Nova KBM, they must be properly qualified and experienced, as well as sufficient in number, to be able to execute in a reliable manner, both individually and collectively as a body, the tasks entrusted to them, while ensuring that their private interests are aligned with the long-term interests of Nova KBM. In view of their responsibility for running and supervising the operations of Nova KBM, the members of a management body are expected to have specific professional and personal competence. The required know-how, skills and experience of each member of a management body separately and in combination with other members of the management body must be such as to ensure that the transactions carried out by Nova KBM, the risks to which it is exposed, and its governance structure are understood to the extent necessary to reach professional, well-thought-out and competent decisions for the purpose of properly managing and supervising Nova KBM. Aside from professional competence, candidates for membership of a Nova KBM management body must demonstrate appropriate personal attributes. All candidates appointed to a management body must be reliable, have a good reputation, and be experts in their respective professional fields.

While the requirements that the candidates for a particular position must meet and the personal characteristics they must have depend on the specifics of that position and the conditions applicable to it, they are directly determined by the nature, scope, volume and complexity of transactions Nova KBM is engaged in (it must be noted in this regard that Nova KBM is considered to be a bank of systemic importance for the Slovene banking system and is defined as such within the framework of the Single Supervisory Mechanism – SSM).