SFIL Annual financial report 2018

1 I Management report 30 SFIL Annual Financial Report 2018 managing these risks. It accordingly plays a dual role: (i) providing the Bank’s various divisions with advice enabling them to measure the risks inherent in their activities, and (ii) defending the interests of SFIL and Caisse Française de Financement Local. Furthermore, the Legal division contributes to the work of the Bank’s various committees: • Within the framework of the Regulatory Watch Commit‑ tee, it disseminates principle positions on legal and regu‑ latory provisions that affect the Bank’s operations; • Within the framework of the New Products Committee, it issues an opinion, as necessary, on the subjects discussed; • Within the framework of the Credit Committee, it analyzes the legal risks associated with the subjects discussed; • Within the framework of the Loan Sensitivity Reduction Committee, it reviews the cases in litigation and the pro‑ gress of proceedings. It also gives its opinion whenever a loan sensitivity reduc‑ tion operation involves a legal risk. The Legal division may also participate in discussions within the framework of audit and internal control operations. SFIL’s General Management, Executive Committee, Board of Directors and the Supervisory Board of Caisse Française de Financement Local receive regular updates on the progress of litigation. A sensitive loan litigation management report is presented at each Board meeting. As regards lawsuit developments, the number of borrowers in litigation for structured loans was 18 as of December 31, 2018, compared with 25 as of December 31, 2017, 39 as of December 31, 2016 and 131 as of December 31, 2015. Since SFIL’s creation 205 borrowers have dropped their claims against the Group. A highlight in 2018 was a Court of Cassation ruling in March 28, 2018 confirming the validity of the structured loans car‑ ried on CAFFIL’s balance sheet. Since the entry into force in July 30, 2014 of the law on the securing of structured loan contracts taken out by com‑ mon law legal entities, 39 court decisions on the merits (27 first instance judgments, 10 appeal judgments and 2 cassa‑ tion judgments) have confirmed the validity of these loan agreements. By contrast, CAFFIL has been convicted under two proce‑ dures that are still ongoing. As of December 31, 2018, to the best of SFIL’s knowledge, there were no other governmental, legal or arbitration pro‑ ceedings against SFIL or CAFFIL that could have a material impact on the SFIL Group’s financial position. 2.6.2. Tax risk SFIL’s Finance division is responsible for tax declarations and may consult the Group’s General Secretariat for tax advice. SFIL relies notably on tax advisory firms of excellent repute for managing its tax risk. For the record, in 2015, French tax authorities undertook a tax audit on the corporate income tax paid by CAFFIL, SFIL’s subsidiary, in respect of fiscal years 2012 and 2013. Following the tax assessment, the tax authorities expressed their disa‑ greement with the tax treatment in Ireland of the results of • Anticipating and helping to apply regulatory changes; •  Carrying out divisional transformation and efficiency pro‑ jects, particularly upgrading systems in cooperation with the Technology and Organization division; • Monitoring compliance risks by producing half-yearly reports presenting highlights, points for attention and control results; • Mapping compliance risks and drawing up and implement‑ ing a compliance control plan; •  Proposing action plans and/or remediating identified non-conformities; •  Reporting to General Management, in collaboration with the Risks division and the General Secretariat’s Admin‑ istration division, and monitoring relations with banking supervisors for compliance issues. The compliance system’s effectiveness is controlled at the highest level of the SFIL Group: •  SFIL’s Board of Directors carries out a half-yearly review of the mechanisms for preventing and controlling compli‑ ance risks and the General Secretary reports twice a year to the Risks and Internal Control Committee. •  In her capacity as member of the Executive Committee, the General Secretary is informed of projects that are subject to an Executive Committee decision and, on such occasions, may express the compliance function’s opinion and report any dysfunctions observed. 2.5.3. Implementation of the compliance system In 2018, the Compliance division continued its actions to improve its organization, digital systems and processes, with the aim of increasing its efficiency in order to comply with regulatory changes and the supervisory authorities’ expec‑ tations and, in general, to establish a compliance culture in all the Bank’s business processes. It accordingly contributed to the project to formalize the Bank’s activities and pro‑ cesses. It also carried out certain tasks and initiatives aimed at strengthening the system’s governance and compliance risk control to take into account regulatory changes. The projects it pursued in this area were: • Adapting the general AML/CTF procedure to the latest regulatory developments, particularly those arising from the implementing decree of April 18, 2018 on the fourth directive’s transposition ordinance designed to strengthen the French anti-money laundering and financing of terror‑ ism system; •  Compliance with the GDPR with regard to personal data protection. The Compliance division also continued its compliance sys‑ tem awareness-raising and training initiatives for all Bank employees, with the aim of strengthening its compliance culture. Lastly, it continued to provide support and advice to the Bank’s General Management and business lines in order to manage as early as possible any compliance issues or obligations. 2.6 – LEGAL AND TAX RISKS 2.6.1. Legal risk SFIL’s monitoring of legal risks focuses on preventing lawsuits, preparing for legal changes and complying with governance principles. The Legal division, which is part of the General Secretariat, has specific responsibility for