Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
The outcome of the SIRA and ongoing monitoring activities
provide further direction to the organisation to manage its
compliance risks on a day-to-day basis. In light of recent
upcoming (regulatory) developments and our obligations
towards our stakeholders, Rabobank commits to adequate
controls for managing the privacy of client data and protecting
against disturbance of banking services as a result of cybercrime.
Ensuring that our clients receive the most appropriate advice
and products has our ongoing attention. In 2017, much
emphasis was placed on the execution of the sector-wide
uniform recovery framework for possible miss-selling of interest
rate derivatives to non-professional SME clients.The project
continues in 2018.
Rabobank does not want to do business with, or facilitate
transactions for, persons or organisations engaged in criminal
activities. Measures are taken on different levels to make sure
this does not happen, including customer due diligence,
transaction monitoring and screening against applicable
sanctions lists. Rabobank continues to increase its level of
scrutiny to meet these standards. During 2018, we will further
strengthen the framework and ensure a consistent approach
across the globe.
Being an international financial institution, Rabobank faces
risks in relation to bribery and corruption from both inside
and outside the organisation. As stated in Rabobank's Code of
Conduct; Any action that evokes the suggestion of a conflict
between private and professional interests must be avoided.'
The control framework to effectively mitigate these risks
contains several elements including our Global Policy on Anti-
Corruption.This policy also covers bribery. All situations for
potential conflicts of interest by employees must be registered
and are monitored.
The outcome of the SIRA 2017 evidences that the key risks
for Rabobank in relation to bribery and corruption relate to
our relations with business partners. Rabobank has a detailed
standard with regard to the due diligence of business partners
before the start of the relationship. In 2018 we will further
enhance the framework, including global registration of
business partners.
Ongoing monitoring
Rabobank assesses the level of compliance through first and
second line monitoring, for key risks and controls. In addition,
deep dive (thematic) reviews are executed by a dedicated
compliance monitoring team. Furthermore and as part of
our ongoing surveillance activities, Compliance monitors the
transactions of clients against cybercrime, money laundering
and fraud.
Market risk/Interest Rate risk
Market risk entails that the bank's earnings and/or economic
value may be negatively affected by changes in interest rates
or market prices. Exposure to a certain degree of market risk
is inherent in banking and creates the opportunity to realise
profit and value. In managing and monitoring market risk,
a distinction is made between market risk in the trading
environment and market risk in the banking environment.
Within the trading environment, the most significant types of
market risk are: interest rate risk (including basis risk), credit
spread risk and currency risk. Risk positions acquired from
clients can either be redistributed to other clients or managed
through risk transformation (hedging). The trading desks
are also acting as a market-maker for secondary markets (by
providing liquidity and pricing) in interest rate derivatives and
debt, including Rabobank bonds and Rabobank Certificates.
Market risk in the trading environment is managed and
monitored on a daily basis within the trading market risk
framework. A prudent limit and control framework is in place.
Within the banking environment the most significant type of
market risk is interest rate risk. Rabobank is mainly exposed
to interest rate risk in the banking environment as a result of
(1) mismatches between the repricing period of assets and
liabilities and (2) embedded optionality in client products. In
the banking environment Rabobank is also subject to currency
risk, which is mainly translation risk on capital invested in
foreign activities.
The internal VaR model forms a key part of Rabobank's market
risk framework. Rabobank has opted to apply a VaR model
based on a historical simulation that uses one year of historical
data. Rabobank recognises that VaR, due to its underlying
statistical assumptions, must be complemented by stress
testing for more comprehensive risk assessment, so we use this
to measure events that are not captured by the VaR model.
Apart from the regular'business as usual'risk management, new
developments and improvements were made in stress testing,
including the interest rate risk in banking book ECB stress test
during the summer, supporting Treasury with covered bond
and rabo certificates issuance, Mifid II regulatory compliance,
and kick off with regard to strengthening Asses and Liability
Management. Finally, the Managing Board, underthe supervision
of the Supervisory Board, determines the interest rate risk
appetite and the corresponding limits on an annual basis.
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