About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
Market inefficiency misconduct
Data privacy
Conflicts of interest
Anti-fraud -corruption
Anti-money laundering (AML)/counter terrorist financing
(CTF)
Economic sanctions.
Compliance Risks
Every year, Rabobank performs a Systematic Integrity Risk
Analysis (SIRA). This allows for an integrated view on the level of
compliance risks pertaining to the organization as well as the
level of effectiveness of the riskcontrol framework. The outcome
of the SIRA and of ongoing monitoring activities provide further
direction to the organization so that it may manage its
compliance risks on a day-to-day basis.
Ensuring that our clients receive the most appropriate advice and
the most fitting products has our ongoing attention. During
2018, we continued the execution of the recovery framework on
reassessment of Dutch SME interest rate derivatives. By the end
of 2018, Rabobank has provided all qualifying clients clarity on the
outcome.
Rabobank is strongly committed to preventing the use of
Rabobank's products and services for Money Laundering and
Terrorist Financing purposes and to preventing violations of
Sanctions Regulations. In 2018, Rabobank has stepped up its
efforts in this area and we will continue this work in 2019.
Activities are being undertaken across the organization to ensure
that we meet all regulatory standards and that we achieve global
oversight on and consistency in our approach. This includes an
upgrade of our transaction monitoring capabilities throughout
the entire network.
Because it is an international financial institution, Rabobankfaces
risks relating to bribery and corruption from both inside and
outside the organization, which is why conflicts of interest
between private and professional interests must be avoided at
all times.The control framework which effectively mitigates these
risks contains several elements, including our Global Policy on
Anti- Corruption and Conflict of interest. In 2018, we updated the
policy in order to remain aligned with changing legislation and
society's expectations. In our control framework we continuously
focus on potential risks related to third parties, with whom we do
business and we screen parties in orderto mitigate potential risks.
The implementation of these (new) requirements derived from
the General Data Protection Regulation (GDPR) came into effect
on May 25, 2018. The entire bank recognizes the importance of
these new requirements. In view of our digitalization- and data
strategy, privacy will remain a key risk. It will continue to be very
important in safeguarding the interests of our clients, our
employees and of other stakeholders. Therefore, Rabobank is
strengthening its privacy governance model across our global
organization, the roll-out of which will continue in 2019.
Market Risk
The market risk appetite is based on Rabobank's market risk
appetite for Markets and Treasury. These are the main Rabobank
departments with trading or banking books exposed to market
risks. Market risks within other entities are limited. Rabobankaims
for a modest exposure to market movements in its trading
environment.
Market riskentails 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 realize profit and value.
In managing and monitoring market risk, a distinction is made
between the trading environment and market risk in the banking
envi ronment.
Market risk in the trading environ ment is managed and monitored
on a daily basis within the trading market risk framework. The risk
appetite is the core of the framework and is defined by the
Managing Board. The framework further consists of a prudent
limit and control infrastructure. 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 be either redistributed or
managed through risktransformation (hedging). Nexttothecore
task of hedging, the trading desks also act as a market-maker for
secondary markets (by providing liquidity and pricing) in a broad
selection of products of interest to Rabobank's clients.
The internal VaR model is an important 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 recognizes that VaR, due to its underlying statistical
assumptions, must be complemented by stress testing to
measure events not captured by the VaR model. In addition, an
extensive set of complementary parameters and controls is used
to monitor market risk in the trading book. These include, but are
not limited to, interest rate delta, tenor basis swaps risk,
commodity cash delta, notional limits and FX exposure limits.
Interest Rate Risk
Rabobank's risk appetite for interest rate risk follows from its
business strategy. Being a rock-solid bank is one of the key
themes of Rabobank's business strategy. In the IRRBB strategy this
results in two objectives: we aim to generate predictable net
Annual Report 2018 - Management Report
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