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Santander Bank Annual Report 2011 Cumpliance, historical data and general information 2011
AppendicesEL MODELO DE CONTROL INTERNODEL GRUPO SANTANDER204 ANNUAL REPORT 2011
206 Grupo Santander’s compliance programme 210 Historical data 212 General informationANNUAL REPORT 2011 205
Grupo Santander’scompliance programmeThe General Code of Conduct is the central element of the Regarding the codes and sector specific manuals, theGroup’s compliance programme. This code, which sets out the compliance programme focuses, among others, on theethical principles and rules of conduct governing the behaviour following operational spheres:of all Grupo Santander’s employees, is supplemented by otherrules in codes and sector specific manuals. • Prevention of money laundering and financing of terrorism. • Conduct in the securities markets.The compliance management area is part of the generalsecretariat division and is responsible, along with other areas or • Marketing of products and services.units, for executing the compliance programme and, in general, • Relations with regulators and supervisors.the Groups compliance policy in order to: (i) minimise theprobability of irregularities occurring; and (ii) identify, report and • Preparing and disseminating the Group’s institutionalensure that those irregularities that might occur are quickly information.resolved. Governance of the compliance programmeThe compliance area has the following functions: The board, the audit and compliance committee and other bodies of the Group, with varying levels of responsibility and1. Implement the General Code of Conduct and the Group’s different tasks, supervise the compliance programme in Grupo other codes and manuals. Santander.2. Supervise the training activity conducted by the human The board approves the Group’s general compliance policy and resources area. the compliance programme and regularly receives information from the audit and compliance committee on implementation3. Manage the investigations made into possible acts of non- of the programme. compliance, requesting help from internal auditing and proposing to the irregularities committee the relevant The audit and compliance committee supervises compliance sanctions. with the General Code of Conduct and the codes and sector specific manuals and, in general, implementation of the4. Cooperate with internal auditing in the regular reviews it programme. It makes the necessary proposals for improvement, makes regarding compliance with the General Code and with and regularly informs the board on the state of the compliance the codes and sector specific manuals, without detriment to function and implementation of the programme. the regular reviews of regulatory compliance that compliance management makes. The report on the compliance function to the board is permanent and is carried out via the audit and compliance5. Receive and deal with denunciations made by employees and committee. The Group’s chief compliance officer participated in third parties through the channel for this purpose. 11 of the 12 meetings held by this committee in 2011.6. Advise on resolving doubts that arise from implementing As well as presenting at these meetings monographs on various codes and manuals. issues, the chief compliance officer reported in 11 reports on7. Draw up an annual report on implementing the compliance 134 specific regulatory issues that affected the Group’s entities programme, which will be submitted to the audit and throughout the world. compliance committee. The compliance committee, which is the body responsible for all8. Regularly inform the general secretary, the audit and matters related to the compliance function that are not specific compliance committee and the board on the execution of the ones of marketing products and services or the prevention of compliance policy and implementation of the compliance money laundering and of the financing of terrorism, met five programme; and times in 2011.9. Annually asses year the changes needed to be introduced into the compliance programme, especially in case of detecting unregulated business areas and procedures susceptible to improvement, and propose these changes to the audit and compliance committee.206 ANNUAL REPORT 2011
The corporate committee of commercialisation, which develops The analysis and resolution committee is a collegiate body ofin the Group the processes related to approval of products and corporate scope chaired by the general secretary of Bancoservices offered to customers and their monitoring, held 19 Santander, S.A. and made up of representatives from internalmeetings in 2011, and the analysis and resolution committee, auditing, general secretariat, human resources, as well as thespecialised in prevention of money laundering and financing of most directly affected business units.terrorism, met four times. The CDPML is integrated into the corporate area of complianceLastly, as part of its functions of investigation and internal and reputational risk and its function is to establish, coordinatecontrol, internal auditing carried out tests and necessary reviews and supervise the systems and procedures for the prevention ofto ensure that the rules and procedures established in the money laundering and of financing of terrorism in all thecompliance programme are being fulfilled. Group’s units. At the end of 2011, the CDPML had 40 employees.Prevention of money laundering and of financingof terrorism There are also people responsible for prevention of moneyIt is a strategic objective of Grupo Santander, a socially laundering and of financing of terrorism at four different levels:responsible organisation, to have an advanced and effective area, unit, branch and account.system to prevent money laundering and the financing of A total of 508 professionals work in the Group in the area ofterrorism, permanently adapted to the latest international prevention of money laundering and of financing of terrorism.regulations and with the capacity to meet the appearance of Of them, three-quarters work on this and nothing else. Theynew techniques by criminal organisations. tend to 195 units in 35 countries.Money laundering is participation in any activity whose purpose Grupo Santander has established in all its units and businessis to acquire, possess, use, convert, transfer, hide or mask the areas corporate systems based on decentralised IT applications.nature, origin, location, disposition, movement or ownership of These enable transactions and customers who because of theirgoods or rights on goods, knowing that these goods come from risk need to be analysed to be presented to the branches of thecriminal activity or participation in criminal activity. account and/or customer relation managers. The tools areFinancing of terrorism is understood as supplying, depositing, complemented by others centralised by teams of analysis fromdistributing or collecting funds, by any means, directly or prevention units who, on the basis of certain risk profiles andindirectly, with the intention of using them or with the changes in certain patterns of customer behaviour, enableknowledge that they will be used wholly or partly to commit a operations susceptible of being linked to money launderingcrime of terrorism. and/or the financing of terrorism to be analysed, identified early on and monitored.The prevention function is articulated around policies that setminimum standards that Grupo Santander’s units must observe, The Group analysed a total of 24.8 million operations in 2011formulated in accordance with the principles of the 49 (both by the commercial networks as well as money launderingrecommendations of the Financial Action Task Force Group and prevention teams), of which more than one million were by theDirective 2005/60/EC of the European parliament and of the units in Spain.Council, of October 26, 2005, regarding prevention of using the Procedures have also been established in all units that enablefinancial system to launder money and finance terrorism. suspicious transactions to be communicated to the authorities,These policies are set out in corporate manuals (universal guaranteeing throughout the circuit the strictest confidentiality.banking, private banking and correspondent banking). These In 2011 the Group opened and investigated 73,942 casesinternal rules have been transposed to all the Group’s units regarding customers and operations with signs of links tothroughout the world, with the necessary local adaptations. The criminal activities. As a result of these investigations, 20,162various subsidiaries and business areas have manuals and communications were issued to the relevant authorities inprocedures adapted to the type of business and profile of various jurisdictions, as the initial suspicions were firmed upcustomers. (voluntary communications for suspicion).The central department for the prevention of money laundering One of the Group’s priorities in this sphere is to take the(CDPML) carried out actions in 2011 to fully adapt the units to necessary steps so that all employees know the requirementsthe rules transposed by the third directive of the European resulting from the prevailing regulations. In 2011, 119,976Union, mainly regarding the requirement of segmentation by employees received training on prevention of money launderingrisk of money laundering and financing of terrorism of all (a total of 146,911 hours).customers in the process of contracting, as well asestablishment of due diligence differentiated on the basis of the The CDPML and the local departments of prevention conductrisk assigned (strengthened, standard or simplified). It also annual reviews of all the Group’s units throughout the world. Inpromoted a permanent and systematic task of updating the 2011, 172 units were reviewed, 25 in Spain and the rest abroad,rules in all units abroad. issuing reports that state the measures to be taken to improve and strengthen systems. These reports entail in all cases theThe organisation to prevent money laundering and the financing measures to be taken (recommendations) to improve theof terrorism has three pillars: the analysis and resolution systems. In 2011, 338 measures were established, which arecommittee, the central department for the prevention of money being monitored until their full and effective implementation.laundering and executives in charge of prevention at the variouslevels. ANNUAL REPORT 2011 207
Many units are submitted to regular reviews by external Conduct in the securities marketsauditors. Deloitte carried out in 2011 an integral review of the The functions of compliance management with regard to theglobal system of prevention of money laundering at the parent code of conduct in the securities markets are as follows:bank and in the rest of the units in Spain. This review also tookinto consideration aspects of coordination and global 1. Register and control sensitive information known and/orsupervision of the rest of the Group’s units in the world. The generated by the Group.report issued in April 2011 did not find any evidence of material 2. Keep updated the lists of securities affected and relatedweakening of the system, limiting itself to formulating an personnel, and watch the transactions conducted with theseeventual recommendation of the rectification arisen and an securities.eventual recommendation of the improvement suggested. 3. Monitor transactions with restricted securities according toSantander is a founder member of the Wolfsberg Group along the type of activity, portfolios or collectives to whom thewith 10 other large international banks. The Wolfsberg Group’s restriction is applicable.purpose is to establish international standards that increase theeffectiveness of programmes to combat money laundering and 4. Receive and deal with communications and requests to carrythe financing of terrorism in the financial community. Various out own account transactions.initiatives have been developed on anti-money laundering inprivate and correspondent banking, the financing of terrorism, 5. Control own account transactions of the personnel subjectamong others. Regulatory authorities and experts in this area to the CCSM.believe that the principles and guidelines set by the WolfsbergGroup represent an important step in the fight against money- 6. Manage failures to comply.laundering, corruption, terrorism and other serious crimes. 7. Resolve doubts on the Code of Conduct in the SecuritiesDuring 2011, the Wolfsberg Group published the Principles of Markets (CCSM).Action in Foreign Trade Activity and two guides of good 8. Resolve and register, in the sphere of its responsibilities,practices (to prevent corruption and on prepaid cards). It also conflicts of interest and situations that could give rise tomaintained working groups to propose best practices regarding them.various compliance and regulatory issues. As part of the privatesector, it cooperated actively in consultations by different 9. Assess and manage conflicts arising from the analysisregulatory and supervision bodies. activity. 10. Keep the necessary records to control compliance with the obligations envisaged in the CCSM. 11. Develop ordinary contact with regulators; 12. Organise the training and, in general, conduct the actions needed to apply the code; and 13. Analyse activities suspicious of constituting abuse of the market and, where appropriate, report them to the supervisory authorities. The compliance management of the parent bank together with the compliance executives of the subsidiaries verifies that the obligations contained in the CCSM are observed by more than 8,000 Group employees throughout the world.208 ANNUAL REPORT 2011
Marketing of products Other compliance activitiesThe section on reputational risk in the risk management report Compliance management continued to carry out other activities(pages 196 to 197 of this annual report) describes the in 2011 inherent to its sphere, such as, among others, reviewingcomposition, functions and activities carried out in 2011 by the the Bank’s internal rules (circulars and various notes) before theircorporate committee of marketing. The corporate office for publication, ensuring treasury stock operations are in line withmanagement of reputational risk and the global consultative internal and external rules, maintaining the section oncommittee are also dealt with. regulatory information on the corporate website, reviewing the vote recommendation reports for shareholders’ meetings drawnRelations with the supervisory authorities and up by the leading proxy agencies in this area and sendingdissemination of information in markets periodic regulatory information to the supervisory bodiesCompliance management is responsible for answering the (treasury stock, significant equity stakes, opening and closing ofinformation requirements of the regulatory and supervisory branches).bodies in Spain and in those countries where the Groupoperates, monitoring the implementation of measuresemanating from the reports or inspection activities of thesebodies and supervising the way in which the Group disseminatesinstitutional information into markets, ensuring it is donetransparently and in accordance with the requirements ofregulators.At each meeting, the audit and compliance committee isinformed of the main matters.The 2011 report of the audit and compliance committeecontains more information on relations with supervisors andinstitutional information on the Group. ANNUAL REPORT 2011 209
Historical data(1) 2001 - 2011 2011 2010 2009 2008 2007 Mill. $ Mill. euros Mill. euros Mill. euros Mill. euros Mill. eurosBalance sheetTotal assets 1,619,348 1,251,525 1,217,501 1,110,529 1,049,632 912,915Net customer loans 970,555 750,100 724,154 682,551 626,888 571,099Customer deposits 818,435 632,533 616,376 506,976 420,229 355,407Customer funds under management 1,273,654 984,353 985,269 900,057 826,567 784,872Shareholders equity (2) 104,326 80,629 75,273 70,006 63,768 51,945Total managed funds 1,789,438 1,382,980 1,362,289 1,245,420 1,168,355 1,063,892Income statementNet interest income 42,852 30,821 29,224 26,299 20,945 14,443Gross income 61,539 44,262 42,049 39,381 33,489 26,441Net operating income 33,886 24,373 23,853 22,960 18,540 14,417Profit before taxes 11,038 7,939 12,052 10,588 10,849 10,970Attributable profit to the Group 7,439 5,351 8,181 8,943 8,876 9,060 2011 2010 2009 2008 2007 $ Euros Euros Euros Euros EurosPer share data(3)Attributable profit to the Group 0.8366 0.6018 0.9418 1.0454 1.2207 1.3320Dividend 0.7763 0.6000 0.6000 0.6000 0.6325 0.6068Share price 7.595 5.870 7.928 11.550 6.750 13.790Market capitalisation (million) 65,070 50,290 66,033 95,043 53,960 92,501Euro / $ = 1.2939 (balance sheet) and 1.3903 (income statement)(1) Figures from 2004 on according to IFRS.(2) In 2011, estimated data of May 2012 scrip dividend.(3) Figures adjusted to capital increases.(4) Compound Annual Growth Rate. Net customer loans and total managed funds Profit before provisions (net operating income) Billion euros Billion euros 1,383 24,373 1,362 23,853 Total managed funds 22,960 1,245 1,168 1,064 18,540 1,001 962 793 14,417 750 724 11,218 683 627 461 453 571 418 8,765 523 436 6,431 5,944 5,721 369 5,566 Net customer loans 173 174 163 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 with IFRS with IFRS210 ANNUAL REPORT 2011