SFIL Annual financial report 2018

1 I Management report 14 SFIL Annual Financial Report 2018 1. Overall internal control system 1.1 – RESPONSIBILITIES AND OVERALL ARCHITECTURE OF INTERNAL CONTROL The SFIL Group is one of the large banks that have been under the direct supervision of the European Central Bank (ECB) since November 2014 within the framework of the Single Supervisory Mechanism (SSM). Since it manages Caisse Française de Financement Local, SFIL has been delegated to exercise the functions of inter‑ nal control for said entity pursuant to a corresponding man‑ agement agreement. Consequently, internal control at SFIL also meets the regulatory obligations of Caisse Française de Financement Local in this regard. The objectives and organization of the SFIL Group’s inter‑ nal control system comply with the provisions of the French Monetary and Financial Code and the arrêté of November 3, 2014. These texts require that an internal control system be put in place to ensure the existence of the following control mechanisms: •  a control system for transactions and internal procedures; •  an accounting and data processing system; •  systems to measure risks and results; •  systems to monitor and control risks; •  a system for documentation and information; •  a mechanism for monitoring cash and securities flows. This internal control system is a process applied by SFIL’s General Management and all of its employees, at the initia‑ tive of its Board of Directors. The organization is designed to provide reasonable but not absolute assurance with regard to the achievement of the objectives that the SFIL Group has set in terms of performance, profitability and protection of its financial assets. This is notably the case as regards carrying out the four key responsibilities with which its shareholders have entrusted it. The SFIL Group’s internal control system has the follow‑ ing objectives: •  verifying the efficiency of the risk control system to ensure that risks are in line with the risk appetite defined by the Group’s governing bodies; •  ensuring that the accounting and financial data produced is reliable and relevant in order to give a true and fair view of the SFIL Group’s situation in a regular, comprehensive and transparent manner; •  overseeing the SFIL Group’s compliance with the regula‑ tions and rules governing ethical and professional conduct, particularly with its legislative and regulatory obligations with regard to corporate governance and compliance; • making sure that the SFIL Group’s processes are effective and efficient, in order to ensure the correct execution of its transactions and the optimization of its resources. Pursuant to the arrêté of November 3, 2014, the general architecture of the SFIL Group’s internal control system con‑ sists of three levels that enable it to achieve its assigned objectives: •  the first level of control takes place in the operating teams; •  the second level corresponds to the permanent control activities carried out under the responsibility of the Oper‑ ational Risks and Permanent Control division or, for com‑ pliance risks, the Compliance division; •  the third level of control is periodic control, carried out by an independent team, the Internal Audit and Inspection division. Reporting to SFIL’s Chief Executive Officer, the objective of this team is to periodically check that the two control levels mentioned above are applied correctly. The various entities in charge of internal control (the Opera‑ tional Risks and Permanent Control division, the Compliance division and the Internal Audit and Inspection division) meet regularly as an Internal Control Committee in order to share information about the risks each division has identified in its area of competence, coordinate internal control initiatives to remedy risk situations and analyze the findings of their respective control plans. A computer system enables the Operational Risk and Per‑ manent Control and Internal Audit divisions to monitor risks, controls, recommendations and action plans. A project is cur‑ rently underway to equip SFIL with a new tool in 2019. The managers of the internal control functions report to Gen‑ eral Management and to the appropriate Board committee (the Risks and Internal Control Committee). At their request, they can be heard by this committee and by the Board. They can directly approach the Board or the appropriate Board committee if they consider that an event having a significant impact must be submitted to them. These various levels of control are deployed under the aegis of the SFIL Group’s executive and decision-making bodies. 1.2 – SUPERVISORY BODY AND ACCOUNTABLE OFFICERS The Risks and Internal Control Committee, composed of mem‑ bers of SFIL’s Board of Directors, is responsible, pursuant to the French Commercial Code ( Code de commerce ) and the arrêté of November 3, 2014, for ensuring the effectiveness of internal control and risk management systems, for giving an assessment of the quality of internal control, in particular the consistency of risk measurement, monitoring and control systems, and for suggesting, if need be, any additional action. This committee is also responsible for monitoring SFIL’s per‑ manent control, compliance and periodic control system. It likewise examines, with the Company’s Statutory Auditors, any risks weighing on their independence. SFIL’s Chief Executive Officer and Deputy Chief Executive Officer, as accountable officers under current banking reg‑ ulations, guarantee the efficient operation of SFIL’s internal control system. They allocate the resources required to carry out the missions of the different divisions in charge of con‑ trol, verify that the objectives are attained and that the inter‑ nal control system is adapted to the regulations and SFIL’s Internal control and preparation and processing of accounting and financial information