Settlement with the Central Bank - Q&A from shareholders
Questions from shareholders and other stakeholders. The Bank will make all questions and answers available to shareholders on its website, prior to the Shareholder Meeting to be held on 28 July 2023.
1. Did shareholders formally request that the meeting be held, and if so, did they request an informative meeting only or for an election to the Board of Directors be held – or is it the Boards' decision to call the meeting?
2. Does the Board of Directors intend to make information available prior to the meeting on 28 July 2023?
3. Did the Board of Directors decide to take on the role as manager in the Offering or was it informed of the Bank's intention to take on the role?
4. Did the Board of Directors decide if and subject to which conditions the Bank's employees and/or members of the Board of Directors would be allowed to participate in the Offering or did the Board receive a presentation on that matter?
5. Considering the risk of conflicts of interest, does the Board of Directors generally consider it appropriate for the Bank to take on a role as a manager in offerings of the Bank's own shares and/or bonds?
6. Had the Board of Directors been informed about weaknesses in the internal controls related to the audio recording of phone calls within the Bank? If so, what action was taken?
7. The settlement states that the Bank submitted explanations and viewpoints regarding the preliminary findings of the Financial Supervisory Authority of the Central Bank of Iceland (FSA) on 30 December 2022 and requested that the case be concluded with a settlement on 6 January 2023. When did the Bank receive the preliminary findings by the FSA and when did the Board of Directors receive that document for consideration? What was the treatment of the case by the Board of Directors and what factors were most important for the conclusion that the Bank decided to request a settlement of the case so soon after raising objections?
8. Has the Bank examined and analysed whether the conduct of the Bank's employees mentioned in the settlement has harmed the interests of customers during the Offering? In this regard, in the opinion of [shareholders], it would e.g. be right to consider whether any employees of the Bank took action based on the information they had at their disposal during the execution of the Offering, e.g. by making or adding to their own offer when demand became apparent to them.
9. When reading the settlement, one might assume that the Bank's problem stems, to a significant extent, from the behaviour of employees and company culture which, among other things, relates to objectionable behaviour and/or indifference to the interests of customers and other stakeholders. How does the Board of Directors intend to overcome this problem? Why does the Board of Directors consider it appropriate, taking into account the problem at hand, to hire, without advertisement, for key positions, long time employees of the Bank? How does the Bank's Board of Directors believe that the interests of the Bank and its shareholders are better served by that arrangement than e.g. by publicly advertising the jobs?
Section 3 of the settlement states that the Bank has not satisfactorily met the requirements of the law, on measures for conflicts of interest.
10. What measures has the Bank taken to ensure that in the future there will be no conflicts of interest between the Bank's employees and its customers, or that they will be managed in an acceptable manner?
11. What measures has the Bank taken to ensure adequate separation of business functions in the future? The question relates specifically to the situation of Bank's Corporate Finance and Securities Sales units but is not limited to those areas.
12. What measures has the Bank taken to ensure that the internal rules and policies on conflicts of interest are up to date at all times and thus have the appropriate effect on the Bank's operations?
Section 4 of the settlement discusses the Bank's monitoring system with risk factors in its operations and how they are applied in practice. It is the conclusion of the FSA that the Bank did not comply with the provisions of the law when operating the system.
13. What measures has the Bank taken to ensure that risks in its operations will be assessed appropriately for the future?
Section 5 of the settlement deals with the lack of recording and retention of phone calls and other electronic communications. The statistics in the chapter are notable, as is the assumed paucity of follow-up by management in light of the comments of the internal auditor and the compliance officer and certain disciplinary problems amongst some employees.
14. What measures has the Bank taken to ensure that communications are appropriately recorded?
15. What measures has the Bank taken to ensure the proper recording of communications?
Section 6 of the settlement deals with customer categorisation. From the review, it can be concluded that the Bank´s employees handled consumer protection rules in a somewhat careless fashion.
16. What measures has the Bank taken to ensure that the internal and external rules discussed in the section will be complied with in the future?
17. What measures has the Bank taken as a result of the behaviour described by the Bank's employees, where they directly encourage customers to waive the legal protection of private investors?
Section 7 of the settlement deals with the provision of information to customers. From the review it could be assumed that the Bank´s employees intentionally misled the Bank´s customers, namely the buyers and sellers in the offering.
18. Has the Bank undertaken an independent analysis of parts individual employees played in relation to what is stated in the settlement?
19. What measures has the Bank taken as a result of that analysis, in general and specifically towards individual employees?
Section 8 of the settlement deals with the Bank's breach of its obligations to act honestly, fairly and professionally in accordance with normal and sound business practices and customs. Section 9 also deals with the corporate governance of the Bank. The conclusions of these sections bore witness to deficiencies in the Bank's Board of Directors and its senior management. In light of this, the former CEO and some of her subordinates are no longer in their roles and it is foreseeable that the Board of Directors may not continue without a renewed mandate.
20. It has been reported that a severance agreement has been concluded with the former CEO. The content of the agreement and its conditions should be made available. If the Board of Directors believes that the confidentiality provisions of the agreement prevent such disclosure, it is requested that the Board of Directors acquires consent for such confidentiality to be lifted.
21. It has been reported that at the termination of employment of employees other than the former CEO, no separate termination agreements have been concluded, but that wages will be paid during the respective notice periods. The content of these agreements and the contractual conditions should be made available. If the Board of Directors believes that the confidentiality provisions of the agreements prevent such disclosure, the request is made that the Board of directors acquires consent for such confidentiality to be lifted.
22. In light of the above-mentioned severance agreements and payments during the notice period, it is requested that an explanation be given as to how it is in the Bank's interests to dismiss employees following the settlement, that was made due to their responsibility for that position, but at the same time pay them full salary on notice period or make special severance agreements.
Having read the settlement, one could conclude that the position of the Compliance Officer was weak and that the Officer's comments and warnings were not given the weight they should have.
23. What is the status of the Compliance department today?
24. What action has been taken to strengthen the Compliance department within the corporate structure of the Bank?