Managing compliance risks forms part of internal control and good corporate governance practices and, as such, an integral part of business management duties and the corporate culture. Responsibility for regulatory compliance and its supervision within OP Financial Group entities rests with the senior and executive management and all supervisors and managers. In addition, everyone employed by OP Financial Group is responsible for their part for regulatory compliance.
The Compliance function assists senior and executive management and business lines/divisions in the management of risks associated with regulatory non-compliance, supervises regulatory compliance and, for its part, develops internal control further. Guidelines, advice and support concerning compliance within OP Financial Group are the responsibility of the central cooperative’s Compliance organisation that is independent of business lines/divisions. Compliance ensures that regulations are complied with and implemented mainly by performing compliance supervision, by drawing up compliance risk assessments and by participating in the risk assessment of operating models related to new products and services. OP cooperative banks have their own designated compliance officers. In order to ensure that their operations comply with regulations, OP cooperative banks receive support from the central cooperative’s Retail Banking Steering, which is part of the first line of defence. In addition, the central cooperative’s Compliance organisation controls and supports OP cooperative banks’ compliance measures. In part of the business segments, the first line of defence includes a Risk & Compliance Lead organisation that supports regulatory compliance and internal control.
Any observations made within compliance are reported regularly to the business segments, to OP Cooperative’s Executive Management Team and its Steering and Compliance Committee, and to the Risk Committee and Audit Committee of the Board of Directors. In addition, the Compliance function reports compliance matters required by regulation to the boards of directors of the central cooperative consolidated’s major subsidiaries on a quarterly basis, including its key compliance observations, compliance recommendations and the progress in implementing such recommendations.
At OP Financial Group, OP Cooperative’s Board of Directors is the most important decision-making body for duties related to risk management. OP Cooperative’s Supervisory Council confirms the decisions by the Board of Directors that apply to OP Financial Group’s risk appetite. The Risk Committee of the Board of Directors assists the Board of Directors in performing duties related to risk-taking and risk management. Based on the decision by the President and Group Chief Executive Officer, the Executive Management Team has set up a Risk Management Committee, Steering and Compliance Committee and Banking ALM Committee that approve instructions and policy descriptions specifying the Risk Appetite Statement and the Risk Appetite Framework.
The bases for the arrangement of OP Financial Group’s risk management prepared by OP Cooperative’s senior management and set by the Board of Directors are as follows:
- Senior management prepares business divisions’ strategic choices that, in terms of risk-taking, are based on OP Financial Group’s Risk Appetite Statement (RAS) document, confirmed by OP Cooperative’s Supervisory Council. The Risk Appetite Statement outlines and gives grounds for what risks each business unit is ready to take and to what extent. The business units are obliged to operate within the limits of these restrictions.
- Senior management decides on the division of responsibilities as regards risk-taking. The Group defines what risks different earnings logics (product and service packages) can take and any potential elaborations on what risks legal entities and various functions can take within the earnings logics when serving customers.
- The governance structure provides the basis for the fact that the key principles guiding operations and the related policies and operating instructions have been prepared and resolved appropriately and that each activity is assessed and supervised in appropriate manner in view of quality, extent and complexity by expert parties that are independent of business, in addition to monitoring performed by the business concerned.
- OP Financial Group’s remuneration schemes are in line with the Group’s mission, core values and targets. Remuneration may not encourage unnecessary risk-taking or actions that are against the customer’s best interest. Compliance and Risk Management are involved in the preparation of the remuneration principles, remuneration policy and remuneration schemes and in the determination of supervisory practices related to remuneration processes.
- The principles of corporate governance as required by joint and several liability define and determine the bank-specific corporate governance of the central cooperative and its member cooperative banks, as required under joint and several liability.
- In addition, the principles of internal control, good corporate governance, good business practices and corporate security set preconditions for practices.
Internal audit constitutes independent and objective assessment, verification and consulting activities with a view to generating added value to OP Financial Group and improving its operations. The central cooperative’s Internal Audit is responsible for the performance of Group-level, risk-based internal audit in all OP Financial Group entities. Internal Audit is headed by the Chief Audit Executive appointed by OP Cooperative’s Supervisory Council. The Chief Audit Executive reports on the audit activities to the President and Group Chief Executive Officer in administrative terms and to the Audit Committee of OP Cooperative’s Board of Directors in operational terms.
Internal Audit annually draws up an action plan based on the Internal Audit assessment of current risks and significant future risks associated with OP Financial Group’s operations. The action plan and its changes, if any, are discussed by OP Cooperative’s Executive Management Team and the Audit Committee of the Board of Directors and approved by OP Cooperative’s Board of Directors.
In its operations, Internal Audit complies with the Internal Audit Charter confirmed by OP Cooperative’s Board of Directors in April 2020, and the International Standards for the Professional Practice of Internal Auditing confirmed by the Institute of Internal Auditors (IIA). Internal audit performance is subject to external quality assessment about every five years.
OP Cooperative has one auditor, which must be a firm of authorised public accountants certified by the Finnish Patent and Registration Office. The auditor also audits the consolidated financial statements as referred to in section 9 of the Act on the Amalgamation of Deposit Banks, i.e. the OP Financial Group’s financial statements. The Cooperative Meeting elects the auditor.
The term of office of the auditor expires upon the closing of the Annual Cooperative Meeting following its election. The Audit Committee of OP Cooperative’s Board of Directors puts audit services out to tender at some five years’ interval (last time in 2018 by the then Audit Committee of the Supervisory Board), on the basis of which it makes a recommendation to the Board of Directors on the auditor to be appointed. The Board of Directors makes a proposal to the Cooperative Meeting regarding the appointment of an auditor.
The audit firm’s auditors are tasked with auditing the accounting, internal control, accounting policies, management accounting judgements, presentation and structure of the financial statements of OP Financial Group, its entities and sub-groups in order to obtain assurance that the financial statements of the Group and its entities have been prepared in compliance with the rules and regulations in force governing the preparation of financial statements, and that they give OP Cooperative’s members and other stakeholders a true and fair view of the financial position, financial performance and cash flows of the Group. In addition, the auditors regularly issue other statements on the basis of specific regulation applicable to the sector.
The Audit Committee of the Board of Directors deals with and assess matters related to audit and auditors:
- by regularly consulting the auditor
- by discussing and assessing the audit plan, auditor’s reports and other relevant reports issued by the auditor
- by monitoring and assessing audits
- by assessing the auditor’s independence of mind
- by assessing the provision of non-audit (ancillary) services and monitoring their use
- by approving special assignments given to the auditor that exceed the limits set separately by the Committee.
KPMG Oy Ab, an audit firm, has acted as OP Cooperative’s auditor since 2002, with authorised public accountant Juha-Pekka Mylén as the Chief Auditor since 2019. KPMG Oy Ab acts as the auditor of entities belonging to OP Cooperative Consolidated, or the central cooperative consolidated, with auditors appointed by KPMG Oy Ab acting as chief auditors. Auditors acting as OP Financial Group member cooperative banks’ auditors also include other audit firms and authorised public accountants, in addition to KPMG Oy Ab.
Control within the amalgamation of OP Financial Group cooperative banks
The amalgamation comprises OP Cooperative as the central cooperative together with its member credit institutions and financial institutions and service companies over which they exercise control. OP Cooperative controls the amalgamation’s operations and provides the companies within the amalgamation with guidelines for risk management, good corporate governance and internal control with the aim of safeguarding their liquidity and capital adequacy. The central cooperative may also confirm general principles to be followed by the member credit institutions in operations relevant to the amalgamation.
In addition, OP Cooperative supervises the amalgamation entities in the manner referred to in the Act on the Amalgamation of Deposit Banks.
OP Financial Group as a credit institution is supervised by the European Central Bank (ECB). The Finnish Financial Supervisory Authority oversees OP Financial Group’s investment firms and insurance companies in Finland as prescribed in legislation governing financial and insurance markets. OP Financial Group’s operations in Estonia, Latvia and Lithuania are supervised to an applicable extent by the national regulators.