VKF_FRAE_2018_uyg11

114 Part III: Financial Highlights and Assessment of Risk Management ASSESSMENT OF THE INTERNAL SYSTEMS AND 2018 OPERATIONS COMPLIANCE DEPARTMENT’S ACTIVITIES Compliance and Regulation Department carries out activities in order to fulfill the responsibilities stipulated in the legislation issued by the Financial Crimes Investigation Board (MASAK) within the scope of “Prevention of Laundering Proceeds of Crime and Financing of Terrorism,” and to comply with international principles and rules on the same. Pursuant to the “Regulation On Program of Compliance with Obligations Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism,” and in order to ensure that the Bank’s obligations are fulfilled; necessary policies and procedures are established with the aim of identifying customers, classifying them by risk categories and monitoring them, and informing on suspicious customer transactions. Controls are performed on whether these policies and procedures are implemented; and opinion/approval is presented for risky sector/ country transactions. The Financial Crimes Investigation Board (MASAK) is informed on the transactions determined to be suspicious in the investigations and evaluations made within the framework of a risk-based approach regarding potentially suspicious transactions for the Bank that are detected as part of monitoring and controlling efforts or forwarded via channels like branches etc. In order to make sure that the Bank healthily keeps track of international sanctions, the blocked persons list, covering the sanctions of international organizations and institutions such as the United Nations, European Union, and the Office of Foreign Assets Control (OFAC) is used in investigations and controls. Compliance-related duties and activities are performed in coordination to prevent laundering the proceeds of crime and financing of terrorism at domestic and foreign branches of the Bank. For foreign branches subject to a compliance program prepared by the Bank as per the laws of the country of operation, compliance risks that may arise from the regulations in foreign countries are monitored by a member of the employees in charge of controlling compliance with applicable regulations. Aforementioned activities are carried out in coordination with business departments. In-class and online training courses are regularly provided to the Bank’s employees in order to constantly raise the awareness for, and strengthening the culture of, preventing laundering of proceeds of crime and financing of terrorism. LEGISLATION MONITORING AND EVALUATION ACTIVITIES The Compliance and Regulation Department carry out activities in order to monitor relevant legislation on banking activities and manage the compliance process in an effective and efficient manner. Recent developments in legislation and banking practices related to banking activities are monitored; the impacts of changes to legislation on the banking activities are interpreted. Within this scope, the measures to be taken by the Bank and changes to be made in the Bank’s internal legislation and practices are identified, and written information provided to the relevant departments of the Bank. These departments are requested to take necessary measures, in addition to being monitored. Furthermore, relevant departments are informed on draft banking regulations, and thus necessary procedures are initiated before they enter into force. Tasks for regulatory compliance controls are carried out within the scope of the “Regulation On Banks’ Internal Systems and Internal Capital Adequacy Assessment Process.” Accordingly, (i) compliance with regulatory changes are coordinated; (ii) measures taken, practices changed and internal procedures formulated to align the Bank’s internal procedures and practices with such regulatory changes are monitored and controlled in terms of regulatory compliance; (iii) necessary corrections and changes are made; (iv) necessary measures are taken to ensure prompt and full compliance with laws; (v) controls are performed for regulatory compliance of new products and services; and (vi) the process of updating the internal procedures and guidelines are coordinated within the Bank. Notification and coordination processes are run to ensure the Bank participates in the meetings held by the Banks Association of Turkey. The Bank also joins, together with relevant functions, the Working Groups formed within the scope of regulatory compliance activities. Participation is ensured in the meetings of Working Groups. When the Association requests the Bank’s opinion on a specific subject, opinions are gathered from business departments and are evaluated to express an opinion on behalf of the Bank. Information on the activities carried out under the Association, regulatory arrangements communicated by the Association, and instructions and information received from the Agency (BRSA) are all disseminated to relevant business departments, and actions taken are monitored. There are agreements in place on exchange of information between the Republic of Turkey and the United States of America and with OECD countries to enhance international tax compliance. Legislation regarding these agreements is monitored. Relevant business departments are assigned to ensure compliance with such legislation, and the efforts undertaken by business departments are followed up. Efforts include those on compliance with the Foreign Account Tax Compliance Act (FATCA), and Common Reporting Standards (CRS). Additionally, compliance of foreign branches with the legislation in their respective countries is monitored by a member of the employees assigned at those branches in charge of the aforementioned matters and reporting on compliance. INFORMATION ON LEGISLATIVE AMENDMENTS THAT MIGHT AFFECT THE BANK’S ACTIVITIES MATERIALLY In January 2017, the Public Oversight Authority (KGK) published the TFRS 9 Financial Instruments Standard, which replaces TMS 39. TFRS 9 entered into force on January 1, 2018. Pursuant to the BRSA Regulation on “Procedures and Principles for Classification of Loans and Provisions to be Set Aside” as published in the Official Gazette dated 22 June 2016 with numbered 29750, it is mandatory for Banks to implement TFRS 9 as of 1 January 2018. The Bank started to implement TFRS 9 as of January 2018. According to the BRSA’s Regulation on the “Amendment to the Regulation on Classification of Loans and Procedures and Procedures for Provisions to be Set Aside,” the classification of the receivables amounting to 100 Turkish Lira or less as non- performing loan is in discretion of banks; and banks must document the assessment results relating to loans which exceed the amount of one million Turkish Liras and the highest