BANCA MEDIOLANUM S.P.A. REPORT ON CORPORATE GOVERNANCE AND CORPORATE STRUCTURE pursuant to art. 123-bis of the CFA FY 2016

Transcription

1 BANCA MEDIOLANUM S.P.A. REPORT ON CORPORATE GOVERNANCE AND CORPORATE STRUCTURE pursuant to art. 123-bis of the CFA FY 2016 Version approved by the Board of Directors on February 21,

2 TABLE OF CONTENTS GLOSSARY pg ISSUER S PROFILE pg INFORMATION ON CORPORATE STRUCTURES pg ADHESION TO THE CORPORATE GOVERNANCE CODE pg BOARD OF DIRECTORS pg PROCESSING OF CORPORATE INFORMATION pg BOARD OF DIRECTORS INTERNAL COMMITTEES pg APPOINTMENTS COMMITTEE pg REMUNERATION COMMITTEE pg DIRECTORS REMUNERATION pg RISK COMMITTEE pg INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM pg DIRECTORS INTERESTS AND RELATED-PARTY TRANSACTIONS pg APPOINTMENT OF STATUTORY AUDITORS pg COMPOSITION AND FUNCTIONING OF THE BOARD OF pg. 115 STATUTORY AUDITORS 15.0 RELATIONSHIP WITH THE SHAREHOLDERS pg GENERAL MEETINGS pg CHANGES AFTER THE CLOSURE OF THE FINANCIAL YEAR OF REFERENCE pg. 122 ANNUAL REPORT OF THE DIRECTORS UNDER PRINCIPLE 1.C.2. OF THE CORPORATE GOVERNANCE CODE OF LISTED COMPANIES pg. 123 ANNEXES Annex 1: Tables Paragraph on Main characteristics of the risk management and internal control systems in relation to the financial reporting process pursuant to art. 123-bis, paragraph 2, lett. b), CFA pg. 126 pg

3 GLOSSARY Code/Corporate Governance Code: the Corporate Governance Code of listed companies approved in the amended version in July 2015 by the Committee for Corporate Governance and promoted by Borsa Italiana S.p.A., ABI, Ania, Assogestioni, Assonime and Confindustria. Civil Code/c.c.: the Civil Code. Board: the Issuer s Board of Directors. Supervisory Provisions: the Supervisory Provisions for Banks (Bank of Italy Circular no. 285 of December 17, 2013 and subsequent updates). Issuer/Company: the Issuer of securities to which the Report refers. Financial Year: the Company financial year to which the Report refers. Merger: merger by incorporation of Mediolanum S.p.A. in Banca Mediolanum S.p.A. MTA: indicates the Electronic Stock Exchange organized and managed by Borsa Italiana S.p.A. Consob Issuer Regulation: the Regulations issued by CONSOB with resolution no of 1999 (and subsequent amendments) on the matter of Issuers. Consob Market Regulation: the Regulations issued by CONSOB with resolution no of 2007 (and subsequent amendments) on the matter of markets. Consob Related Parties Regulation: the Regulation issued by Consob with resolution no of March 12, 2010 (and subsequent amendments) on the matter of transactions with related parties. Report: the corporate governance and corporate structure report that companies are required to draw up pursuant to article 123-bis of the CFA. Consolidated Banking Act/CBA: Legislative Decree of September 1, 1993, no Consolidated Finance Act/CFA: Legislative Decree of February 24, 1998, no

4 Banca Mediolanum S.p.A. has prepared this Report, which aims to illustrate the characteristics of its corporate governance organization. Having adopted the Corporate Governance Code - available on the website under Italian Stock Exchange/Publications issued by the Corporate Governance Committee of the Italian Stock Exchange, the Company has also outlined in this Report the state of compliance of the corporate governance system with the recommendations of the Code, according to the comply or explain principle. The Code was adopted following the initiation on December 30, 2015 of the listing of Banca Mediolanum S.p.A. shares on the MTA, following the reverse merger (the Merger ) by means of which Banca Mediolanum S.p.A. incorporated its Parent Company listed at the time Mediolanum S.p.A. To this end, the Company adopted the necessary decisions in order to adapt the corporate governance system to the recommendations contained in the Corporate Governance Code currently in force. 4

5 1.0 ISSUER S PROFILE The purpose of Banca Mediolanum S.p.A. is the collection of savings and the provision of credit in its various forms. It may carry out, in compliance with applicable regulations, all banking and financial transactions and services, including the exercise of stock brokerage activities, as well as any other instrumental operation and in any case related to the achievement of the corporate purpose. The Company is organized according to the traditional administration and control model under articles 2380-bis et seq. of the Civil Code, with the General Meeting of Shareholders, the Board of Directors with administrative functions, a Board of Auditors with administration control functions and the Independent Auditors, entrusted with the statutory audit function. This model, based on the in-depth assessment, has been considered the most suitable to ensure efficient management and effective controls, keeping in mind also the costs linked to the adoption and operation of the system chosen. The Company, following the Merger and the consequent listing resumed, as from December 30, the effective date of the Merger - the title of Parent Company of the Mediolanum Banking Group registered in the Register of Banking Groups, assuming at the same time also the title of Parent Company of the Mediolanum Financial Conglomerate mainly in banking activities. The Issuer, in its capacity as Parent Company of the Mediolanum Banking Group, pursuant to article 61, paragraph 4, of the CBA issues, in exercising its management and coordination provisions to other members of the Group to comply with the instructions given by the Bank of Italy in the interest of the stability of the Group. 5

6 2.0 INFORMATION ON CORPORATE STRUCTURES A) Structure of the share capital The fully subscribed and paid-up share capital of the Company as at December 31, 2016 was Euro 600,075,281.10, divided into 739,154,668 ordinary shares without nominal value. There are no shares of a class other than the one mentioned. B) Significant shareholdings Below is the situation regarding the shareholders, directly or indirectly, of more than 3% of the subscribed share capital of Banca Mediolanum S.p.A., represented by shares with voting rights, according to the results of the shareholders register, with communications received and other information available: (data as at February 21, 2017) NO. OF SHARES % SILVIO BERLUSCONI INDIRECT. THROUGH: - FININVEST S.p.A. (OWNERSHIP) 222,660, ENNIO DORIS - DIRECTLY IN OWNERSHIP 23,563, INDIRECTLY THROUGH: FIN.PROG.ITALIA S.A.P.A. di E. Doris & C. 195,289, TOTAL 218,852, LINA TOMBOLATO - DIRECTLY IN OWNERSHIP - INDIRECTLY THROUGH: T-INVEST S.r.l. 24,307,595 25,394, TOTAL 49,702,

7 C) Shareholders Agreements. On September 14, 2016, Fininvest S.p.A. and Fin. Prog. Italia S.a.p.a. di Ennio Doris & C. entered into the Banca Mediolanum Shareholders Agreement (hereinafter the Agreement ). The pre-existing Mediolanum Shareholders Agreement - which later became the Banca Mediolanum Shareholders Agreement (following the adjustment agreement of May 24, 2016) - expired on the same date. The Agreement provides, under article 122 of the CFA: obligations of prior consultation for the exercise of the voting rights (art. 122, paragraph 5, letter a); limits on the transfer of shares (art. 122, paragraph 5, letter b); stability of the shareholding structure and management guidance unit (art. 122, paragraph 5, letter d), of Banca Mediolanum S.p.A., based in Basiglio - Milano 3, Palazzo Meucci, Via Francesco Sforza, tax ID and registration number with the Milan Register of Companies: , whose shares are listed on the MTA. The overall percentage of the share capital conferred under the Agreement is equal to 51% of the Issuer s current capital and is divided into equal shares between Fininvest S.p.A. (25.5%) and Fin.Prog.Italia S.a.p.a. di Ennio Doris & C. (25.5%). The Decision of the European Central Bank of October 25, 2016 opposing the acquisition by Fininvest S.p.A. of a qualified holding in Banca Mediolanum S.p.A., involves, as also communicated to Fininvest S.p.A. by the Bank of Italy with Prot. note No /16 of December 21, 2016, the automatic suspension of the voting rights regarding the shareholding subject to the ECB s decision and that is the shareholding exceeding 9.999%. Fininvest S.p.A., as anticipated in its communication pursuant to art. 120 of Legislative Decree 58/1998 of October 31, 2016 appealed the Decision of the European Central Bank of October 25, 2016 before the 7

8 European Court of Justice on December 23, D) Change of control clauses The Issuer and its subsidiaries have not stipulated nor are part of significant agreements that take effect, are modified or terminate following change of control of the Company. E) Powers to increase the share capital and authorize the purchase of treasury shares As regards the proxies for share capital increases pursuant to art of the Civil Code, please refer to art. 6 of the By-laws of the Issuer available on the website of the Italian Stock Exchange and on the website in the section Corporate Governance under Company corporate governance documents. Such proxies derive from the previous stock option plans promoted by the merged company Mediolanum S.p.A. The General Meeting of the Issuer of April 5, 2016, as proposed by the Board, resolved to authorize the purchase and disposal of ordinary treasury shares. In particular, the meeting resolved: i. to authorize, pursuant to and for the effects of art of the Civil Code, the purchase, on one or more occasions for the period of eighteen months from the date of this resolution, the ordinary shares of the Bank, up to a maximum of 3,500,000 ordinary shares of Banca Mediolanum S.p.A., and, in any case, considering the ordinary shares of Banca Mediolanum S.p.A. from time to time held in the portfolio by the Bank and its subsidiaries, within the maximum limit established by the applicable regulations in force, conferring mandate to the Board of Directors to identify the amount of shares to be purchased prior to the opening of 8

9 each individual purchase program at a price that does not exceed the higher of the price of the last independent trade and the current highest independent bid for trading where the purchase is made, provided that the unit price shall not be less than the minimum of 15% and higher by a maximum of 15% than the official price recorded by the Banca Mediolanum S.p.A. stock the trading day before each single purchase transaction and that, in any case, the maximum total amount of purchases made under this resolution may not exceed Euro 26,250,000; ii. to authorize the Board of Directors, and its Chair, Chief Executive Officer and Vice Chairmen, severally, so that, pursuant to and for the effects of art ter of the Civil Code, they may dispose of at any time, in whole or in part, on one or more occasions, the treasury shares purchased pursuant to this resolution, or in any case in the Banca Mediolanum S.p.A. portfolio, through the free allocation of these treasury shares in favour of the recipients of the Performance Share Plans, if the regulatory requirements and conditions apply as laid down by the Group Remuneration Policies for the payment of the variable remuneration related to the incentive system, attributing to the same, also severally, the broadest powers for the execution of disposals contained in this resolution, as well as any other formalities relating to the same, including the possible conferment of assignments to intermediaries qualified in accordance with law and with the power to appoint special proxies. It is specified that any treasury shares of Banca Mediolanum S.p.A. purchased under this authorization which may exceed those actually used for the aforementioned Performance Share Plans can be used for (a) the allocation of the same for any future incentive plans and/or (b) the provision of the same on or off the stock exchange, possibly also through the transfer of real and/or personal 9

10 rights, with the terms, procedures and conditions of the disposal of treasury shares deemed most appropriate in the interests of Banca Mediolanum S.p.A., in compliance with the provisions of law and regulations currently in force. The authorization referred to in this point under (ii) is granted without time limits. The Board of Directors meeting held April 14, 2016, following the authorization to purchase and dispose of treasury shares resolved by the General Meeting of the Issuer held April 5, 2016, approved the launch of a treasury share buyback program with the exclusive objective of establishing a stock warehouse in order to achieve the funding of shares of Banca Mediolanum at the service of the Performance Share Plans approved by the same General Meeting of the Issuer of April 5, The program for the purchase of treasury shares, in accordance with as resolved by the General Meeting, has the following characteristics: involved a maximum of 3,500,000 ordinary shares of Banca Mediolanum, for a maximum counter-value of Euro 26,250,000.00; started on May 2, 2016 and was concluded with the last transaction on August 22, 2016; purchases of treasury shares were made in compliance with the operating conditions and in the manner established by the market practice permitted by Consob pursuant to art. 180, paragraph 1, lett. c) of the CFA with resolution no of 2009, by EC Regulation no. 2273/2003 of December 22, 2003 and by legislation on market abuse pro tempore in force, as resolved by the General Meeting of April 5, 2016, and in particular: (i) at a price that does not exceed the higher of the price of the last independent trade and the current highest independent bid for trading where the purchase is made, provided that the unit price was 10

11 however not less than the minimum of 15% and higher by a maximum of 15% than the official price recorded by the Banca Mediolanum stock the trading day before each single purchase transaction; (ii) for volumes not exceeding 25% calculated on the basis of the average daily trading volume of Banca Mediolanum shares in the month prior to the one in which the start of the program is communicated to the public (and, therefore, in March 2016); purchases were made under the procedures set out in art. 144-bis, paragraph 1, lett. b) of Consob Issuers Regulations and the provisions however applicable, so as to allow equal treatment of shareholders as required by art. 132 of the CFA; there is a prohibition on operations on the Banca Mediolanum stock in the 15 calendar days prior to the approval by the Board, of accounting data for the period. At December 31, 2016, the Issuer held 3,500,000 treasury shares. The forthcoming General Meeting will be called, inter alia, to resolve on the authorization for the purchase and disposal of treasury shares in accordance with the combined provisions of articles 2357 and 2357-ter of the Civil Code, and article 132 of the CFA. Such authorization - strictly related to the new performance share plans to be proposed to the General Meeting of April 5, was subject to proper request to the Bank of Italy in accordance with the Supervisory Provisions and articles 77 and 78 of EU Regulation 575/2013, and (EU) Delegated Regulation no. 241/

12 3.0 ADHESION TO THE CORPORATE GOVERNANCE CODE On September 23, 2015, the Company approved its adhesion to the Corporate Governance Code of listed companies - available on the website taking all necessary decisions in order to adapt its corporate governance system to the recommendations in the Code in force. The Company also provided that, for transactions that have a significant strategic, economic, equity or financial importance for the same, subsidiaries shall submit the transaction to the Board of Directors of the Parent Company Banca Mediolanum S.p.A. The Issuer is among the banks classified as less significant for European single supervision. 12

13 4.0 BOARD OF DIRECTORS 4.1 Appointment and Replacement The current Board of Directors of the Issuer was appointed by the General Meeting on March 19, 2015 on the basis of the statutory provisions then in force before listing and shall be in office, according to the shareholders resolution, for three years and thus until the date of the General Meeting convened to approve the financial statements for the year ending December 31, The statutory norms that currently regulate the appointment and replacement of the Directors are contained in art. 17 of the By-laws and outlined below: - Article 17) 1. The Company is managed by a Board of Directors consisting of seven to fifteen members, who must meet the requirements of primary and secondary legislation in force pro tempore, as well as the codes of conduct drafted by management companies operating in regulated markets or by trade associations to which the Company adheres (hereinafter also the Codes of Conduct ), and may be reappointed. Of these, a number corresponding to at least the minimum required by the primary and secondary legislation in force pro tempore shall be in possession of the independence requirements prescribed herein (hereinafter also the Independent Directors ). 2. The General Meeting, prior to their appointment, shall determine the number of Board members and the term of office within the limits established by the law. 3. The Company s Directors shall be appointed by the General Meeting on the basis of lists, in which no more than fifteen candidates shall be indicated, each associated to a progressive number. 13

14 A candidate may appear on only one list under penalty of ineligibility. Shareholders having the right to vote who, alone or together with other shareholders, represent at least the percentage of share capital set by the National Commission for Companies and Stock Exchange, are entitled to submit lists. The ownership of the percentage of share capital is determined with regard to the shares registered in favor of the shareholders on the day when the list is filed at the Company, with reference to the share capital subscribed at that date. The related declaration can be communicated to the Company also after the filing of the list, provided it is received by the deadline for publication of the lists by the Company. The Company allows shareholders who intend to submit lists to proceed with filing through at least one means of remote communication, in the manner which shall be disclosed in the convocation notice of the General Meeting and which allows the identification of shareholders who shall proceed with filing. The shareholding portion required for the submission of lists of candidates for the election of the Board of Directors shall be indicated in the convocation notice of the meeting called to approve the appointment of said body. 4. A shareholder may not submit or vote for more than one list, even through a third party or through trust companies. Shareholders belonging to the same group - intended as the Parent Company, subsidiaries and companies under joint control - and shareholders who are parties to a shareholders agreement pursuant to article 122 of Legislative Decree no. 58/1998 regarding Issuer s shares may not submit or vote on more than one list, even through a third party or trust companies. 14

15 5. For the purposes of compliance with the minimum number of Independent Directors referred to in paragraph 1 of this article, each list shall identify a minimum number of candidates, calculated on the basis of the total number of candidates therein, who satisfy the independence requirements provided by primary and secondary legislation in force pro tempore. In order to ensure gender balance in accordance with primary and secondary legislation in force pro tempore, each list containing a number of candidates equal to or greater than three shall have the presence of candidates of both genders, so that at least one third belongs to the less represented gender, rounded up in the event of a fractional number of candidates. In the first application, the portion reserved for the less represented gender is equal to at least one-fifth, rounded up in the event of a fractional number. 6. Lists are filed at the Company within the twenty-fifth day before the date of the meeting called on first or second call to resolve on the appointment of the members of the Board of Directors and made available to the public at the registered office, on the website and other manner prescribed by the National Commission for Companies and the Stock Exchange with regulation at least twenty-one days prior to the meeting. The lists contain: a) information regarding the identity of the shareholders who submitted the lists, indicating the percentage of shares held; b) a declaration by shareholders other than those holding, even jointly, a controlling or relative majority shareholding, certifying the absence or existence of any relation with the latter, in accordance with the provisions of article 147-ter of Legislative Decree no. 58/1998 and 15

16 article 144-quinquies, first paragraph, Consob Resolution no /1999 (hereinafter also the Issuers Regulation ); c) exhaustive information on the personal and professional characteristics of the candidates, a statement by the candidates attesting that they meet statutory requirements and accept the appointment and regarding any possession of the independence requirements provided by article 148, paragraph 3 of Legislative Decree no. 58/1998 and possibly any additional requirements of the primary and secondary legislation in force pro tempore, and the Codes of Conduct. The lists presented without compliance with the foregoing provisions shall not be submitted for voting. 7. The Chair of the General Meeting, before opening the vote, shall refer to any declarations referred to in letter b) above, and require meeting participants who have not filed or participated in filing of lists to declare any relations as defined above. If an individual who is connected to one or more reference shareholders has voted for a minority list, the existence of said relation shall only become relevant if the vote was crucial for the election of the Director. 8. After the vote, the votes obtained by the lists are divided by whole numbers from one to the number of Directors to be elected, regardless of lists that did not achieve a percentage of votes equal to at least half of as required for submission thereof. The resulting quotients are attributed to the candidates of each list, according to the order envisaged therein. Therefore, the quotients attributed to the candidates of the various lists are in a single list in 16

17 decreasing order. The candidates elected, up to the number of Directors set by the General Meeting, are those who have obtained the highest quotients, without prejudice to the fact that the Director appointed shall be the candidate at the top of the second list that obtained the highest number of votes and that is not connected in any way, even indirectly, with the shareholders who submitted or voted for the list with the most votes. Therefore, if said candidate has not obtained the quotient necessary to be elected, the candidate who obtained the lowest quotient from the list that obtained the most votes shall not be deemed appointed and the board will be completed with the appointment of the candidate at the top of the second list that obtained the most votes. 9. The candidate at the top of the list that obtained the most votes shall be elected as Chair of the Board of Directors. 10. If to complete the entire Board of Directors several candidates have obtained the same quotient, the candidate elected shall be from the list that has not yet elected a Director or that has elected the fewest Directors. If none of these lists has elected a Director or they have all elected the same number of Directors, within these lists, the candidate elected shall be from the list that obtained the most votes. In case of equal number of list votes and equal quotient, there shall be a new vote by the General Meeting, and the candidate who obtains the simple majority of votes shall be elected. If proceeding as such, within the new Board of Directors at least the minimum number of Independent Directors required by the primary and secondary legislation in force pro 17

18 tempore is not elected, the procedure will be as follows: candidates who would be elected last based on the progressive quotient and taken from the first list that obtained the most votes, are replaced by candidates immediately following, which obtained the lower progressive quotients, and identified in the same list as Independent Directors. If following the vote and operations above the composition of the Board of Directors does not comply with primary and secondary legislation in force pro tempore regarding the gender balance, the candidate of the most represented gender elected last on the basis of the progressive quotient and taken from the first list that obtained the most votes, is replaced by the first candidate of the less represented gender that obtained the lower progressive quotient and indicated in the same list, providing compliance with the minimum number of Independent Directors required by the provisions in force pro tempore. If this were not the case, the replaced candidate of the most represented gender would be from time to time the subject elected for penultimate, third last and so on, based on the progressive quotient also taken from the first list that obtained the most votes. If, doing so, the result requested is not ensured, substitution shall take place by General Meeting resolution decided by the relative majority, upon the presentation of the candidates that belong to the less represented gender. 11. If only one list has been submitted, the General Meeting shall vote on it and, if it obtains the relative majority of votes, without counting abstentions, the candidates listed in progressive order up to the number set by the General Meeting shall be elected. The candidate at the top of the list shall be elected Chair of the Board of Directors. If proceeding as such, in the presence of a new Board of Directors the provisions currently 18

19 in force are not complied with as regards Independent Directors and/or gender balance, the procedure will be mutatis mutandis as described above in paragraph 10 of this article. 12. In the absence of lists, and if through the voting mechanism by list the number of candidates elected is less than the number established by the General Meeting, the Board of Directors shall respectively be appointed or integrated by the meeting with the majorities required by law. 13. In the event of termination of office, for any reason, of one or more Directors, those remaining in office shall replace them by co-option in accordance with and for the effects of art of the Civil Code, subject to the requirement to comply with the minimum number of Independent Directors and the provisions of primary and secondary legislation in force pro tempore, as well as the Codes of Conduct, also with reference to the gender balance. The meeting appointment of Directors to replace Directors resigned from office, also as a result of co-option of the same, is freely performed with the legal majorities, without prejudice to the obligation to respect the minimum number of Independent Directors and the provisions of the primary and secondary legislation in force pro tempore with regard to gender balance. 14. The Directors listed in their respective lists as Independent Directors are required to immediately inform the Board of Directors if they no longer meet independence requirements and their consequent forfeiture pursuant to law. It is recalled that in addition to the rules laid down by the CFA, the Issuer is subject to banking regulations (the Supervisory Provisions) concerning the composition of the Board of Directors with particular reference to the representation of minority shareholdings or the number and 19

20 characteristics of the Directors. Succession Plans On December 20, 2016 the Board of the Company, subject to the favourable opinion of the Appointments Committee, approved the Succession Plan policy. This policy, prepared in view of best practice and in compliance with the Supervisory Provisions aims to formalize plans by means of which to ensure the orderly succession - inter alia - in executive leadership positions, in particular the CEO and General Manager, in the event of termination, expiration of the mandate or for any other reason, in order to ensure continuity in line with the Company s strategic plans and avoid economic or reputational impact on the Bank. This process also aims to protect the Company from any uncovering of specific organizational roles, ensuring the timely replacement of resources that hold senior positions at the Company and/or roles considered key for the Group. With reference to executive leadership positions, a process has been established that is readily active upon the occurrence of any event resulting in non-continuity in the action and thus the need to appoint a successor. In such cases, the policy in question provides that the Appointments Committee start the process, defining the requirements that make up the profile of the resource to be identified. With the support of the relevant company functions, it is then necessary to proceed with the internal scouting of personnel (Directors, employees, collaborators, etc.) in order to search and identify, within the Group s scope, the possible immediate substitutes for the position considered. Simultaneously, external scouting must be initiated to identify in the market potential candidates who meet the requirements expressed by the Appointments Committee. The results of 20

21 the internal and external scouting will thus be made available to the Appointments Committee which, in turn, will submit potential candidates to the Board of Directors. 4.2 Composition and maximum number of offices held in other companies The Board of Directors of the Company, as already mentioned, consists of 11 members appointed by the General Meeting on March 19, 2015 in accordance with the statutory provisions then in force and shall be in office until the General Meeting called to approve the financial statements at December 31, On May 19, 2016, Mr. Antonio Maria Penna resigned from the office of non-executive Director. On July 28, 2016 the Board of the Company, following intervention of the Appointments Committee, replaced Mr. Penna by co-option pursuant to and for the effects of art of the Civil Code, appointing Mr. Luigi Berlusconi non-executive Board Director, with expiry at the next General Meeting of April 5, 2017 during which the consequent resolutions will be submitted. As a result of the above resolutions, the communications of the individuals concerned and the verifications of requirements carried out by the Directors of the Company, the Board is currently composed as follows: 1. Ennio Doris - Chair (without proxies) - Non-executive 2. Edoardo Lombardi - Deputy Chairman - Non-executive 3. Giovanni Pirovano - Deputy Chairman Non-executive 4. Massimo Antonio Doris - CEO - Executive 5. Luigi Berlusconi Director Non-executive 6. Bruno Bianchi - Director - Independent pursuant to the Corporate Governance Code and 21

22 art.147-ter CFA 7. Luigi Del Fabbro - Director - Non-Executive 8. Annalisa Sara Doris - Director - Non-Executive 9. Paolo Gualtieri - Director - Independent pursuant to the Corporate Governance Code and art.147-ter CFA 10. Angelo Renoldi - Director - Independent pursuant to the Corporate Governance Code and art.147-ter CFA 11. Carlos Javier Tusquets Trias de Bes Non-Executive As for the personal and professional characteristics of each Director, reference can be made to as published on the website of the Issuer ( in the section Corporate Governance under Corporate Bodies ). The Board of Directors of the Company defined - with the preliminary remarks pending the new regulations outlined below - the following general criteria to express its orientation on the maximum number of Director and Auditor positions held by its members in companies that involve significant commitments (listed companies, banks, insurance, financial and large companies) and that also take into account participation in Board Committees: I) an Executive Director shall not hold: i) the office of Executive Director of another listed company, Italian or foreign, or a finance, bank or insurance company; ii) the office of Non-executive Director or Auditor (or member of another control body) in more than five of the aforementioned companies; II) a Non-executive Director, in addition to the office held at the Company, shall not hold: 22

23 i) the office of Executive Director in more than three of the aforementioned companies and the office of Non-executive Director or Auditor (or member of another control body) in more than five of the same companies; or ii) the office of Non-executive Director or Auditor (or member of another control body) in more than eight of the aforementioned companies. Any multiple positions held within the same group of companies - and thus linked to each other by having in common the shareholder or shareholders of reference and/or under common control - shall be considered as a single position. For non-executive Directors who are also members of one or both of the Company s Board Committees, the limits described above need to be curtailed, respectively, of a 50% portion of the office or an entire portion of office. The Board of Directors reserves the right to perform a different assessment which it shall duly disclose in the annual corporate governance report. These criteria are also contained in the document Corporate Governance Project approved recently on September 22, 2016 by the Issuer s Board. Regarding this point, both the Appointments Committee and the Board of Directors stated and agreed that the matter should be reviewed following the expected enactment of the decree of the Ministry of Economy and Finance, which must implement art. 26, paragraph 2, letter e, of the CBA in terms of limits to the number of offices for bankers, graded in accordance with principles of proportionality and taking into account the size of the intermediary. Simultaneously with the periodic self-assessment of the Board of Directors, each Director was 23

24 asked to report on compliance or otherwise of said limit to the accumulation of offices also in accordance with the provisions of the Corporate Governance Project of the Company. With express reference to the year 2016, all the Directors declared to comply with the above limit. In 2015, in the exercise of its legal and statutory powers in force, the Board of Directors confirmed: - Chief Executive Officer Massimo Antonio Doris; - Deputy Chairmen Edoardo Lombardi and Giovanni Pirovano, the first of which with vicarious functions of the Chair. It is pointed out that Ennio Doris (Chair of the Board of Directors) and Edoardo Lombardi (Deputy Chairman) have been qualified as Non-executive Directors as the powers conferred to them meet the requirements of the Supervisory Provisions (Part I, Title IV, Chapter I, Section V, paragraph 2). These powers do not entail, not even de facto, management functions. In 2016, Giovanni Pirovano (Deputy Chairman) and Luigi Del Fabbro (Director) were also classified as Non-executive Directors as a result of changes in their assignments. On January 24, 2017, on the basis of information provided by the Directors Bruno Bianchi, Angelo Renoldi and Paolo Gualtieri, the Board evaluated the same as independent pursuant to art. 148, paragraph 3, of the CFA, as referred to in art. 147-ter, paragraph 4, of the CFA, and pursuant to art. 3 of the Corporate Governance Code. With reference to the qualification of Mr. Gualtieri and Mr. Renoldi as independent pursuant to the Corporate Governance Code, it is emphasized that the Board of Directors reaffirmed, in view of the prevalence of substance over form, as already affirmed also in the previous year, and 24

25 therefore unanimously agreed on the fact that said qualification is also with reference to application criterion 3.C.1. e), that is the persistence in office for more than nine years in the last twelve. In fact, the Board verified and considered the permanence of the ethical qualities of the individuals in question and recognized professional qualities that have always allowed them to maintain and exercise the complete autonomy and independence of judgment - as also, among other things, stated by the same in the self-certification submitted - and considered the existence of the independence requirement under the Corporate Governance Code, also in view of the presence in the office for more than nine years in the last twelve. The Board of Directors of the Issuer determined as Euro 200, per year the amount above which the economic relationships are defined relevant and confirmed the second family degree as a relevant level for the definition of close family members. The Board also found the presence among its members of an adequate number of Independent Directors. The Board of Auditors verified the correct application of the ascertainment criteria and procedures adopted by the Board to evaluate - pursuant to the Corporate Governance Code - the independence of its members. Induction Programme The main legislative and regulatory amendments are made known and explained to the Board by the Legal & Compliance Function and the Corporate Affairs Division, which will collaborate with the Chair in order to help provide Board members with increasingly adequate knowledge of the business sector. 25

26 The Chair of the Board of Directors, assisted by the relevant structures, arranged for the Directors and Statutory Auditors of the Issuer two Board Induction sessions that involved the participation of speakers of primary importance on subjects relating to governance. In particular, the most important aspects were covered (i) of European banking and financial legislation and the Single Supervisory Mechanism was illustrated, as well as its operation and cooperation with other European organizations, and (ii) of the issue of responsibility of Directors in corporate communications. 4.3 Role of the Board of Directors The Board of Directors is the body responsible for business management. In this context, the Board of Directors of the Company acts as the body responsible for strategic supervision and it is assigned the guidance functions of the management of the Company, with the task of defining the guidelines of the Internal Control System, verifying that it is consistent with the strategic guidelines and risk appetite established and is able to manage the evolution of business risks and the interaction between them. In the collegial exercise of the strategic supervision function, the Corporate Governance Project expressly provides that the Board of Directors, in addition to the competences reserved under art. 23 of the By-laws (listed in the following pages): Defines and approves: o the business model with an understanding of the risks to which that model exposes the Bank and the ways in which the risks are identified and assessed; o the strategic guidelines and revises them in relation to changes in business activities and the external surroundings, so as to ensure effectiveness over time; 26

27 o the risk objectives, risk tolerance (where applicable) and risk governance policies; o the criteria for the coordination and management of the Banking Group companies, as well as the criteria for the execution of the instructions of the Bank of Italy; o the guidelines for the internal control system, verifying that they are consistent with the strategic guidelines already in place and with established risk appetites and that they are capable of reflecting the evolution of company risks and the interactions among them; o the criteria for identifying transactions significant enough to require prior approval by the Risk Control Function. It approves: o the establishment of corporate control functions, the associated roles and responsibilities, and arrangements for coordination, collaboration and reporting among those functions and between them and the Company s boards and officers; o the risk management process and assesses its consistency with strategic guidelines and risk governance policies; o the policies and processes for the valuation of company assets, and financial instruments in particular, checking that they are adequate at all times and also establishing maximum exposure limits for the Bank with regard to financial instruments or products whose valuation is uncertain or difficult, which includes checking that the price and conditions of transactions with customers are consistent with the business model and risk strategies; o the process for the development and approval of internal risk measurement systems not used for compliance with regulations, periodically checking that it is functioning properly; 27

28 o a document distributed to all structures concerned defining the roles and responsibilities of the various control bodies and functions, the information flows between the various bodies and functions and between them and company boards and officers and, if there are any potential overlaps among control areas or if synergies could be achieved, the methods for coordination and collaboration to ensure proper interaction among all functions and bodies with control duties, preventing any overlapping and/or gaps; o the process for approving new products and services, launching new activities and entering new markets; o the Company policy on the outsourcing of company functions and the annual report on controls conducted on key operating functions or outsourced controls, any weaknesses found and the consequent corrective action taken, prepared by the Internal Control Function with the support of the control body; o the Code of Ethics with which members of the Company boards and officers and employees shall comply, with a view to mitigating the Bank s operational and reputational risks and fostering a culture of internal control; o internal whistleblowing systems; o the Corporate Governance Project, with the approval of the control body; o the Maximum Available Amount, with the supervisory body s prior approval, if the Company has not complied with the combined equity-required reserve requirement; o amendment to the main internal regulations. it decides on the acquisition and disposal of strategic equity investments; it appoints and revokes the office of the General Manager; 28

29 it appoints and revokes the offices of the heads of the control functions, considering the opinion of the Board of Auditors; considering the opinion of the Board of Auditors, it appoints the Financial Disclosure Officer; it decides on the establishment of committees within the Company boards; it establishes, with a specific resolution, the criteria for the classification, measurement and management of impaired loans and receivables; it prepares, submits to the General Meeting and reviews, at least once a year, the remuneration and incentive policy and is responsible for its proper implementation. The strategic oversight body also ensures that the remuneration policy is adequately documented and accessible within the Company structure; it defines the remuneration and incentive systems at least for the following positions: Executive Directors; General Managers; Co-General Managers, Vice General Managers and similar positions; the heads of the main business lines, corporate functions or geographical areas; those reporting directly to the strategic oversight, management and control bodies; the heads and most senior personnel of the corporate control functions. In particular, it ensures that such systems are consistent with the Bank s overall decisions in terms of risk assumption, strategies, long-term objectives, corporate governance structure and internal controls. It ensures that: o the Bank s structure is consistent with the activities that it performs and with the business model that it has adopted, without the creation of complex structures that are not necessary for operating reasons; 29

30 o the internal control system and the Company organisation are constantly aligned and that the corporate control functions meet requirements and comply with regulatory provisions. If there are weaknesses or irregularities, it immediately encourages the adoption of corrective action and evaluates their effectiveness; o the RAF has been implemented in line with the approved risk objectives and risk tolerance thresholds (where applicable), periodically evaluating the adequacy and effectiveness of the RAF and the compatibility of actual risk with the risk objectives; o the strategic plan, the RAF, the ICAAP, budgets and the internal control system are consistent, also considering changes in the Bank s internal and external operating conditions; o the quantity and allocation of capital and cash are consistent with the risk appetite, risk governance policies and risk management process. At least once a year, it approves the level 2 control functions action plans and the audit plan prepared by the Internal Audit Function and examines the corporate control functions annual reports. It also approves the long-term audit plan. It ensures that the ICAAP is consistent with the RAF and is promptly updated whenever there are significant changes in the strategic guidelines, organisational structure or operating context and encourages full use of the ICAAP findings for strategic purposes and in business decisions. With regard to credit and counterparty risk, it approves the general guidelines of the system for implementing risk mitigation techniques and oversees the entire process for the acquisition, evaluation, control and creation of risk mitigation tools. 30

31 It periodically checks that the choice made remain valid over time, approving substantial changes to the system and overseeing the overall system s correct functioning. It regularly establishes the frequency, in any case at least once a quarter, with which the appointed bodies shall report to the Board on their activities in the performance of their duties. It evaluates the general performance of operations, considering, in particular, the information received from the appointed bodies, and periodically comparing results with forecasts. It resolves on the Issuer s and its Subsidiaries transactions when such transactions are significant with respect to the Issuer s strategies, results, equity or financial position. To this end, it establishes the general criteria for identifying significant transactions. It evaluates, at least once a year, the adequacy of the internal control and risk management system considering the Company s characteristics and risk appetite and its effectiveness. It evaluates, considering the opinion of the Board of Auditors, the Independent Auditors findings in any recommendation letters and reports on key issues that arose during the legally-required audit. It exercises, with the Risk Committee s support, supervisory functions with respect to the adequacy of the powers and means assigned to the Financial Disclosure Officer and effective compliance with administrative/accounting procedures. The strategic oversight body is also responsible for: maintaining a level of liquidity that is consistent with the risk tolerance; defining strategic guidelines, governance policies and management processes for the Bank s specific risk appetite. To this end: 31

32 o it defines liquidity risk tolerance, i.e., the maximum permitted exposure to risk; o it approves: the Bank s methods for evaluating exposure to liquidity risk; the main assumptions used for stress tests; the indicators used to activate contingency plans; the contingency plan to activate in the case of market crises or specific situations affecting the Bank (Contingency Funding Plan CFP); and the internal fund transfer pricing policy, in accordance with regulations, ensuring that the function responsible for processing the internal fund transfer pricing system is independent of other operational functions; the policies for classifying indirect equity investments to meet supervisory requirements; internal policies concerning equity investments in non-financial companies. With respect to the Bank s information system: it approves the information system development strategies, considering developments in the relevant sector and in line with the as-is and to-be structure of operating segments, processes and corporate organisation. In this context, it also approves the information system s architectural model; it approves the information security policy; it approves guidelines for the hiring of technical personnel and the acquisition of systems, software and services, including the use of third-party providers; 32

33 it promotes the development, sharing and updating of ICT knowledge throughout the Company; it is informed at least once a year on the adequacy of the services provided and how these services support developments in company operations, in proportion to costs incurred; it is promptly informed of any serious problems for business activities due to information system incidents and malfunctioning; it approves the organisational and methodological framework for the analysis of IT risk, encouraging the appropriate valuation of information on technological risk within the ICT function and integration with risk measurement and management systems (in particular, operational, reputational and strategic risks). Furthermore, with reference to the General Meeting: the strategic oversight body ensures that a person is appointed to manage relationships with shareholders and periodically considers whether to set up a corporate structure for this function; proposes the shareholders approve a regulation indicating the procedures to follow for orderly and functional General Meetings, ensuring, at the same time, each shareholder s right to take the floor on the matters being discussed; in the event of significant changes in the market capitalization of the Issuer s shares or in the composition of the corporate structure, it considers whether to propose the shareholders amend the By-laws with respect to the percentages established for the exercise of rights and privileges set forth for the protection of minority interests. 33