External revenue, substantially in line with 2018, show a decrease in revenue from Mail, offset by the increase in revenue from the Parcels segment, mainly due to the sale of express parcel courier services and pre- and after-sales assistance to customers acquired following the partial de-merger of SDA Express Courier SpA and the increase in shipments resulting from the partnership with Amazon and other main operators.
Specifically: � Fees for the collection of postal savings deposits relates to remuneration for the provision and redemption of Interestbearing Postal Certificates and payments into and withdrawals from Postal Savings Books. This service is provided by Poste Italiane SpA on behalf of Cassa Depositi e Prestiti under the Agreement of 14 December 2017 to cover the three-year period 2018-2020.
� Income from the investment of postal current account deposits breaks down as follows tab. C1.2.1 - Income from investment of postal current account deposits
Income from deposits held with the MEF primarily represents accrued interest for the year on amounts deposited by Public Administration entities.
� Revenue from current account services primarily relates to charges on current accounts (€216 million), fees on amounts collected and on statements of account sent to customers (€108 million), annual fees on debit cards (€21 million) and related transactions (€28 million).
� Revenue from the distribution of loan products relate to commissions received by the Company on the placement of personal loans and mortgages on behalf of third parties.
� Income from the distribution of payment products and services regards fees received in return for distributing and promoting the products issued by the subsidiary, PostePay SpA.
Other sales of goods and services The main revenue items include: income recognised from the subsidiary PostePay SpA, for cash and payment transactions (€114 million) and income from call centre services (€7 million).
Raw, ancillary and consumable materials and goods for resale tab. C4.3 - Raw, ancillary and consumable materials and goods for resale
Net provisions (reversals) for disputes with staff [tab. B4] 4 2
Depreciation, amortisation and impairments are up €200 million compared with 2018, almost entirely due to depreciation of right-of-use assets (IFRS 16).
Net provisions for risks and charges made/(released) 16 72 for disputes with third parties [tab. B4] (4) 2 for operational risks [tab. B4] 10 79 for expired and statute barred postal certificates [tab. B4] - (15)
Net provisions and losses on receivables and other assets (uses of provisions) 43 21
Provisions (reversal of provisions) for receivables due from customers 37 8
Net impairment losses on debt instruments and receivables attributable to financial activities (2) 1
Finance costs on financial liabilities 29 15 on lease payables 25 on borrowings from financial institutions 2 1 on derivative financial instruments 1 1
Finance costs on provisions for employee termination benefits and pension plans [tab. B5] 17 19
Foreign exchange losses* 4 4 * For the purposes of reconciliation with the statement of cash flows, in 2019 finance costs after foreign exchange losses amounted to €55 million (€66 million in 2018).
C11 – Impairment losses / (reversals of impairment losses) on financial assets (€45 million)
C12 – Income tax expense (€162 million) The nominal tax rate for IRES is 24%, whilst the nominal tax rate for IRAP is 3.90% for entities as a whole and 4.20% for entities that hold concessions other than those relating to the construction and operation of motorways and tunnels (+/–0.92% resulting from regional surtaxes and/or relief and +0.15% as a result of additional surtaxes levied in regions with a health service deficit). The Company’s average statutory rate for IRAP is 4.49%.
Net provisions for risks and charges and bad debts 6 0.73% 2 0.29%
payments on account for the current year 181 38 219 balance payable for the previous year - 8 8
Balance at 31 December 9 * Extraordinary transactions relate to the balance of deferred tax assets transferred to Poste Italiane SpA following the partial de-merger of the business unit of the subsidiary SDA Express Courier SpA, on 1 November 2019.
Income/(expense) recognised in profit or loss 1 1 (5) (76) - 3 7 (69)
At 31 December 2019, deferred tax assets and liabilities recognised directly in equity are as follows: tab. C12.8 - Income/(expense) recognised in equity
Impact of related party transactions on statement of financial position and profit and loss
Consorzio Servizi Telef. Mobile ScpA - - - - - - - 29 -
Poste Tributi ScpA (in liquidation) - - 5 - - 1 - - -
At 31 December 2019, total provisions for risks and charges made to cover probable liabilities arising from transactions with related parties external to the Company and attributable primarily to trading relations amount to €70 million (€71 million at 31 December 2018).
Poste Tributi ScpA (in liquidation) - - - - - - - - - - -
The nature of the Company’s principal transactions with related parties external to the Group is summarised below: � Amounts received from the MEF relate primarily to payment for carrying out the (Universal Service) USO, the management of postal current accounts, as payment for delegated services, the franking of mail on credit, and for the integrated notification service.
� Amounts received from the Enel Group primarily relate to payment for bulk mail shipments, unfranked mail, franking of mail on credit and postage paid mailing services. The costs incurred primarily relate to the supply of gas and electricity.
Revenue from sales and services 8,541 3,524 41.3 84,719 3,221 3.8
Cost of goods and services 1,854 922 49.7 1,725 585 33.9
Net cash flow from/(for) financing activities and shareholder transactions (234) (60) 25.6 (1,487) (409) 27.5
The remuneration paid to members of the Company’s Supervisory Board for 2019 amounts to €84 thousand. In determining the re, the amounts paid to managers of Poste Italiane who are members of the Supervisory Board is not taken into account, as this remuneration is passed on to the employer.
Information on financial risk management at 31 December 2019 is provided below, in accordance with the requirements of the international financial reporting standard, IFRS 7 – Financial Instruments: Disclosures.
Responsibility for coordinating and managing investment and hedging strategies related to BancoPosta RFC and Poste Italiane has been assigned to BancoPosta Fondi SpA SGR respectively from 1 January and 1 July 2019.
Management of the Group’s financial transactions and of the associated risks relates mainly to the operations of Poste Italiane SpA and the Poste Vita insurance Group.
Operations not covered by BancoPosta RFC, primarily relating to management of the Parent Company’s own liquidity, are carried out in accordance with investment guidelines approved by the Board of Directors, which require the Company to invest in instruments such as government securities, high-quality corporate or bank bonds and term bank deposits. Liquidity is also deposited in postal current accounts, subject to the same requirements applied to the investment of deposits by private current account holders.
In this regard, on 19 February 2018, the Board of Directors of Poste Italiane SpA adopted a revised version of the Guidelines for Internal Control and Risk Management System (SCIGR), which contains integrated guidelines for Poste Italiane SpA’s Internal Control and Risk Management System.
� the Financial and Insurance Services Committee, established on 19 March 2018 to replace the previous Finance, Savings and Investment Committee, with the aim of overseeing the process of developing the products and services distributed by BancoPosta, in order to take a uniform, integrated view of the entire offering and to monitor the performance of the financial investments in which private customer deposits are invested.
Fair value interest rate risk This is the risk that the value of a financial instrument fluctuates as a result of movements in market interest rates.
The following interest rate sensitivity analysis was based on changes in fair value with a parallel shift in the forward yield curve of +/- 100 bps. The sensitivities data shown by the analysis provide a base scenario that can be used to measure potential changes in fair value, in the presence of changes in interest rates.
Fair value though profit or loss - - - - - - - - - - * For Other investments relative to Mutual investment funds, the nominal value indicates the number of units held without taking into account the face value of the equity security.
In terms of financial assets recognised at fair value through other comprehensive income, the risk in question primarily relates to: � fixed income government bonds held by Poste Vita SpA, totalling €84,998 million; of this amount, €83,112 million is used to cover Class I and V policies linked to separately managed funds, and €1,886 million relates to the company’s free capital; � €36,799 million in fixed income government bonds held by BancoPosta RFC, which consist of: fixed rate bonds amounting to €14,944 million; variable rate bonds converted into fixed rate bonds via interest rate swaps designated as cash flow hedges, totalling €2,076 million, inflation-linked securities amounting to €2,303 million, and fixed or variable rate bonds converted to variable rate positions via fair value hedges amounting to €17,476 million (including €15,555 million in forward starts); � €16,714 million in non-government debt instruments held by Poste Vita SpA, used mainly to meet obligations towards policyholders.
At 31 December 2019, with reference to the interest rate risk exposure determined by the average duration108, the duration of BancoPosta’s overall investments went from 5.18 to 5.53. On the other hand, with respect to Class I and Class V policies sold by Poste Vita SpA, the duration of the matching assets went from 6.18 at 31 December 2018 to 7.02 at 31 December 2019, whilst the duration of the liabilities went from 8.18 to 9.24 (assessment of the duration was carried out using the new Coherent Duration method109. The financial instruments intended to cover the technical provisions for Class III policies have maturities that match those of the liabilities.
Fair value though profit or loss - - - - - 2018 effects
For the purposes of full disclosure, a movement in the spread would have no accounting effect on financial assets measured at amortised cost, but would only impact unrealised gains and losses. In other words, fixed income instruments measured at amortised cost attributable entirely to BancoPosta, which at 31 December 2019 amounted to €25,064 million (nominal value of €21,175 million) and have a fair value of €24,686 million, would be reduced in fair value by approximately €2.7 billion following an increase in the spread of 100 bps, with the change not reflected in the accounts.
For the purposes of full disclosure, following an increase in the spread of 100 bps, the Poste Vita Group’s fixed income instruments measured at amortised cost, which at 31 December 2019 amounted to €1,729 million (nominal value of €1,697 million) and have a fair value of €1,955 million, would be reduced in fair value by approximately €136 million, with the change not reflected in the accounts.
Financial assets at FVTPL 1,459 2,206 3 * For Other investments relative to Mutual investment funds, the nominal value indicates the number of units held without taking into account the face value of the equity security.
Sensitivity to cash flow interest rate risk at 31 December 2019 on the Poste Italiane Group’s positions is shown in the table below.
Risk exposure Change in value Effect on liability toward policyholders Profit/(Loss) before tax
Nominal +100 bps -100 bps +100 bps -100 bps +100 bps -100 bps 2018 effects
In relation to cash and cash equivalents, cash flow interest rate risk primarily relates to the bank deposits of Poste Italiane SpA and Poste Vita SpA, in addition to amounts deposited by the Parent Company with the MEF and held in the so-called buffer account.
Credit risk management practices: inputs, assumptions and estimation techniques The impairment model applicable to financial instruments measured at amortised cost and at fair value through other comprehensive income is based on Expected Credit Losses (ECL). Below, the methods adopted to manage credit risk are described.
The simplified approach is applied to trade receivables, as described in greater detail later.
The ratings used in stage allocation derive from internal models in the case of banking, sovereign and corporate counterparties, and external models in the case of Public Administration and Central Counterparties. Based on the above information, the Poste Italiane Group rebuts the presumption that there have been significant increases in credit risk following initial recognition, when financial assets are more than 30 days past due.
The Poste Italiane Group decided not to adopt the Low Credit Risk Exemption and to proceed instead with stage allocation of the financial instruments concerned.
Regarding trade receivables, given the adoption of the simplified approach under the new accounting standard, expected credit losses are determined throughout the lifetime of the instrument.
Definition of default The Poste Italiane Group defines default on the basis of ad hoc assessments that take into account: � any payment delays; � market information such as a default rating by the rating agencies; � internal analyses of specific exposures.
The models have been constructed by extracting and utilising the following types of data for each country in the sample: � macroeconomic data; � market data: domestic equity indices, global energy/non-energy indices, Eurostoxx and S&P 500; � financial statement data.
ECL measurement Expected credit losses (ECL) are determined over a time horizon consistent with the stage level (12 months or lifetime) on the basis of the following factors: � Probability di Default (PD); � Loss Given Default (LGD); � Exposure at Default (EAD); � Time Factor (TF).
The main assumptions/choices adopted in the determination of the factors are as follows: � PD: as indicated from the start a Point in Time (PIT) or forward-looking PD has been adopted, depending on the stage of the exposure; � LGD: use has been made of the Internal Ratings-Based (IRB) approach under the Basel guidelines (45% for senior risk assets, 75% for subordinated risk assets); � EAD: exposure calculated prospectively until maturity of the instrument, starting from the development of projected cash flows. In the development account was taken of specific indexation assumptions for every asset class (fixed income securities, floating-rate securities, inflation-indexed securities, etc.); � TF: the effective interest rate of each exposure was used as discount factor.
Trade receivables The Group adopts the simplified approach to test for the impairment of trade receivables, on the basis of which provisions for credit losses are determined for an amount equal to expected losses throughout the lifetime of the receivable. Such approach is implemented through the following process: � based on total revenue or the historical credit exposure, all receivables or credit exposures exceeding a certain pre-established credit threshold are assessed analytically. The analytical evaluation of the exposures entails an analysis of the borrower ’s credit quality and solvency, as determined on the basis of internal and external supporting evidence; � for receivables falling below the threshold set, through the preparation of a matrix with the different impairment percentages determined on the basis of historical losses, or on the historical pattern of collections. In constructing the impairment matrix, receivables are grouped by homogeneous categories, based on their characteristics, to take into account the historical loss experience.
Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 2019 effects
Total amortised cost at 31 December 2019 1,532 - 36,084 - 265 - 569 2,871 41,321 2018 effects
At 31 December 2019, the Group does not hold financial assets secured by guarantees or other risk mitigation instruments for which no loss provisions have been made (except for the temporary use of liquidity in repurchase agreements).
The Poste Italiane Group, as a rule, exempts the Public Administration from the provision of guarantees to secure trade receivables arising from transactions with it, save for the cases when such guarantees are mandatory by law or due to implementing rules of specific services.
For all the exposures evaluated individually, to calculate loss provisions, guarantees reduce the amount of the exposure at risk.
Poste Italiane Group - Credit risk - Details of the provision to cover expected losses on financial instruments at amortised cost
Reversal of securities / receivables held at the beginning of the period - (2) (2)
At 31 December 2019, estimated expected losses on financial instruments at amortised cost amount to approximately €32 million, substantially in line with the provision made at 1 January 2019.
Poste Italiane Group - Credit risk - Details of the provision to cover expected losses on financial instruments at FVTOCI
Trade receivables The Poste Italiane Group’s exposure to credit risk, in relation to each class of trade receivable at 31 December 2019, is shown separately depending on whether or not the model used to estimate ECL is based on an individual or a collective assessment.
Poste Italiane Group - Credit risk - Trade receivables impaired on the analytical basis
Description (€m) Balance at 31/12/2018 Net provisions Uses Balance at 31/12/2019
Offsetting financial assets and liabilities In compliance with IFRS 7 – Financial instruments: Disclosures, this section provides details of financial assets and liabilities that are subject to master netting agreements or similar arrangements, regardless of whether the financial instruments have been offset in keeping with paragraph 42 of IAS 32114.
In order to present the tables in compliance with the requirements of IFRS 7, repurchase agreements are shown at amortised cost, whilst derivative transactions are shown at fair value; the relevant financial guarantees are measured at fair value.
Financial assets offset in the financial statements or subject to framework master netting agreements or similar arrangements
The following tables compare the Poste Italiane Group’s liabilities and assets at 31 December 2019, in terms of liquidity risk.
Fair value through profit or loss (liabilities) (16) (12) 12 - - (12) 12 - 2018 effects
Financial assets at amortised cost 127 156 - - - - - 2018 effects
+ Vol 260 days - Vol 260 days 2019 effects Financial assets
Fixed income instruments - 1 1 - - - - - - Financial assets at FVTPL - 153 137 6 (6) 6 (6) - - Equity instruments - 79 71 3 (3) 3 (3) - - Other investments - 74 66 3 (3) 3 (3) - - Financial derivatives - (17) (15) (1) 1 (1) 1 - - Fair value through profit or loss - - - - - - - - - Fair value through profit or loss
+ Vol 260 days - Vol 260 days + Vol 260 days - Vol 260 days + Vol 260 days - Vol 260 days 2019 effects
Nominal Fair Value +100bps -100bps +100bps -100bps +100bps -100bps 2019 effects
Risk exposure Change in value Profit/(Loss) before tax nominal +100 bps -100 bps +100 bps -100 bps 2019 effects
Financial liabilities due to subsidiaries (505) (5) 5 (5) 5 2018 effects
Risk exposure Change in value Profit/(Loss) before tax nominal +100 bps -100 bps +100 bps -100 bps
Provision to cover expected losses - - (11) - - - - - - (11)
Provision to cover expected losses - OCI - - (11) - - - (11)
Provision to cover expected losses - OCI - - (13) - - - (13)
from AAA to AA+ from A+ to BBB- from BB+ to C Not
Total amortised cost at 31 December 2019 - - 381 - 8 - - 5 - 394 2018 effects
Total amortised cost at 31 December 2018 - - 440 - - - - 6 - 446
from AAA to AA+ from A+ to BBB- from BB+ to C Not Rated
Carrying amount - Fair value at 31 December 2018 - - 532 - - - - - - 532
Gross Carrying amount Provision to cover expected losses Gross Carrying amount Provision to cover expected losses
Impairment of securities / receivables held at the beginning of the period 4 - 4
Reversal of securities / receivables held at the beginning of the period - (1,489) (1,489)
BancoPosta RFC - Credit risk - Details of the provision to cover expected losses on financial assets at FVTOCI
Reversal of securities / receivables held at the beginning of the period - (2,406) (2,406)
Impairment of securities / receivables purchased/paid in the period - 1,983 1,983
Assets outside the ring-fence - Credit risk - Details of the provision to cover expected losses on financial instruments at amortised cost
Impairment of securities / receivables held at the beginning of the period
Gross Carrying amount Provisions for doubtful debts Gross Carrying amount Provisions for doubtful debts
Credit risk - Trade receivables adjusted on the basis of the provision matrix
Receivables relating to fixed-term contract settlements 10 2 - 12 of which attributable to BancoPosta RFC 27 2 - 29
Financial liabilities attributable to BancoPosta 34,993 17,512 19,882 72,387 27,764 13,329 23,849 64,942
Fair value through profit or loss (15) (12) 12 (12) 12 - 2018 effects
Fair value through profit or loss 17 (15) (1) 1 (1) 1 - 2018 effects
In 2019, activities continued to refine the operational risk management framework, with the aim of making the process of recording operational losses more efficient and mitigating such risks by cross-functional working groups. Support has also been provided to the specialist units and the owner of the process of analysing and assessing IT risk, in keeping with the approach adopted in 2018.
At 31 December 2019, the risk map prepared in accordance with the aforementioned framework shows the type of operational risks BancoPosta RFC’s products are exposed to. In particular: Event type Number of types
Poste Vita SpA and Poste Assicura SpA have also drawn up and finalised their own framework for identifying, assessing and managing operational risks. The adopted approach reflects the specific nature of the processes and operational risk events typical of an insurance company. The process of assessing operational risk exposure is carried out in keeping with the related solvency requirements, and involves both qualitative and quantitative analysis, conducted through a structured process for identifying internal losses and assessing potential risks in terms of frequency, impact and mitigation. Overall, exposure to risks is limited, although in 2019, there were a number of cases of fraud involving the settlement of life insurance policies (a total of €1.5 million, of which approximately €0.6 million for positions already reactivated by Poste Vita and approximately €0.8 million allocated to the provision for risks and charges). Organisational and control measures to mitigate risk have been reviewed.
Nevertheless, at 31 December 2019, the mortality risk is limited for the Group, considering the features of the products offered. The only area where this risk is somewhat significant is term life insurance. With reference to these products, a comparison is periodically made between actual deaths and those predicted by the demographic bases adopted for pricing. Moreover, mortality risk is mitigated through reinsurance and by setting limits on both the capital and the age of the policyholder when policies are sold.
– Provisioning risk: referring to the risk that technical provisions are not sufficient to meet obligations to policyholders. This insufficiency may be due to incorrect estimates by the company and/or changes in the general environment.
� Catastrophe risk: the risk that extreme and exceptional events have a negative impact that has not been taken into account when pricing the policies.
The Poste Italiane Group has adopted a fair value policy, setting out the general principles and rules to be applied in determining fair value for the purposes of preparing the financial statements, conducting risk management assessments and supporting the market transactions carried out by the Finance departments of the various Group entities. The principles and rules to be applied in measuring the fair value of financial instruments are unchanged with respect to 31 December 2018 and have been defined in compliance with indications from the various (banking and insurance) regulators and the relevant accounting standards, ensuring consistent application of the valuation techniques adopted at Group level. The methods used have been revised, where necessary, to take into account developments in operational procedures and in market practices during the year.
Level 1: this level is comprised of fair values determined with reference to unadjusted prices quoted in active markets for identical assets or liabilities to which the entity has access on the measurement date. For the Poste Italiane Group the following categories of financial instrument apply: Bonds quoted on active markets: � Bonds issued by EU government bodies or Italian or foreign corporate bonds: measurement is based on bid prices, according to a hierarchy of sources where the MTS (the wholesale electronic market for government securities) ranks first, MILA (Milan Stock Exchange) second, for bonds intended for retail customers, and the CBBT (Composite Bloomberg Bond Trader) third; � Financial liabilities: measurement is based on the ask prices quoted by CBBT (Composite Bloomberg Bond Trader).
Quoted open-end investment funds: measurement is based on the daily closing market price as provided by Bloomberg or the fund manager. Level 1 bond price quotations incorporate a credit risk component. Exchange rates published by the European Central Bank are used in determining the value of financial instruments denominated in currencies other than the euro.
Unquoted equities: this category may be included here provided it is possible to use the price of quoted equities of the same issuer as a benchmark. The price inferred in this manner would be adjusted through the application of the discount implicit in the process to align the value of the unquoted shares to the quoted ones.
Unquoted open-end investment funds: measurement is based on the latest available NAV (Net Asset Value) as provided by Bloomberg or as determined by the fund manager.
Derivative financial instruments: � Interest Rate Swaps: Plain vanilla interest rate swaps: valued using discounted cash flow techniques, involving the computation of the present value of future differentials between the receiver and payer legs of the swap. The construction of yield curves to estimate future cash flows indexed to market parameters (money market rates and/or inflation) and computation of the present value of future differentials are carried out using techniques commonly used in capital markets.
� Warrants: considering the features of the securities held, measurement is based on the local volatility model. In particular, considering that buyback agreements have been entered into with the counterparties that structured these warrants, and that such counterparties use valuation models consistent with those used by the Group, these instruments are measured on the basis of the bid price quoted by the counterparties.
Fixed rate and variable rate instruments: measurement is based on discounted cash flow. The counterparty’s credit spread is considered through: � use of the Italian government yield curve or the credit default swap (CDS) of the Italian Republic, in the case of Italian government agencies; � use of quoted CDS yield curves or, if not available, the adoption of synthetic CDS yield curves represented by the counterparty ’s rating, as constructed starting from the input data observable on the market; � use of yield curves based on the specific issuer’s quoted bond prices.
� Structured bonds: valuation is based on a building block approach, entailing decomposition of a structured position into its basic components: the bond and option components. The bond component is measured by discounting cash flows to present value in line with the approach applicable to straight bonds, as defined above. The option component - which considering the features of the bonds included in the portfolio of the Poste Italiane Group relates to interest rate risk - is measured in accordance with a standard closed form expression as with classical option valuation models with underlyings exposed to such risks.
Investment property (former service accommodation): The value of this investment property is determined on the basis of the applicable law (Law 560 of 24 December 1993), which sets the selling price in case of sale.
Reclassifications from level 1 to level 2 relate to financial instruments whose value, at 31 December 2019, is not observable in a liquid and active market, as defined in the Group’s Fair Value Policy. Reclassifications from level 2 to level 1, on the other hand, relate to financial instruments whose value, at 31 December 2019, is observable in a liquid and active market.
Movements in level 3 during the year are shown below: Movements in financial instruments - level 3
Changes in fair value through profit or loss - 25 - 25
In the case of the Group’s insurance Company, instruments in level 3 regard funds that invest primarily in unlisted instruments, whose fair value measurement is based on the latest available NAV (Net Asset Value) as announced by the fund manager. This NAV is adjusted according to the capital calls and reimbursements announced by the managers and occurring between the latest NAV date and the measurement date. These financial instruments primarily consist of investments in private equity funds and, to a lesser extent, real estate funds associated entirely with Class I products related to separately managed accounts. Movements during the period regard the purchase of new investments, redemptions of units of unquoted close-end funds and changes in fair value during the year.
Level 3 changes in the fair value hierarchy during the year also affected financial liabilities after the Parent Company, Poste Italiane SpA, entered into a forward contract for the sale of 400,000 Visa Incorporated ordinary shares. The fair value of the forward sale has decreased by €15 million in the reporting year, reflecting movements in both the price of the shares in US dollars and the euro/dollar exchange rate.
117. The dollar offset approach is a quantitative method that involves a comparison between movements in the fair value or cash flow of the hedging instrument and the movements in the fair value or cash flow of the hedged instrument attributable to the risk hedged. Depending on the policy selected, this approach can be used: • on a cumulative basis, by observing the performance of the hedge since inception; • on a periodic basis, by comparing the hedge performance with that of the last test. The dollar offset approach can be implemented through a hypothetical derivative, that is by constructing a theoretical derivative to compare the relevant theoretical movements in far value or cash flow with those of the hedged instrument (actual derivative).
118. For the hypothetical derivative use is made of the mid-market spread, which makes the present value at the settlement date equal to zero, and for the actual derivative the interest rate agreed upon with the counterparty.
To limit the effects of interest rates on fair value, BancoPosta RFC enters into Over the Counter (OTC) interest rate swaps to hedge the fair value of the bonds held in the portfolio. The objective of these transactions is to have instruments that can offset changes in fair value of the portfolio due to interest rate fluctuations and the rate of inflation. The credit risk of the Italian Republic is not hedged and is set for the duration of the swap.
119. The critical terms approach involves a comparison between the critical terms of the hedging instrument with those of the hedged item. The hedging relationship is highly effective when all the critical terms of the two instruments match perfectly and there are no features or options that might invalidate the hedge. Critical terms include, for example: notional amount of the derivative and principal of the underlying, credit risk, timing, currency of the cash flows.
122. The hypothetical derivative uses the fixed rate, which makes the present value at the settlement date equal to zero, while the actual derivative uses the interest rate agreed upon with the counterparty.
The hypothetical derivative and the actual derivative have the settlement date that matches the inception of the hedge and differ in terms of their fixed income component122. Moreover, for the derivatives used to hedge inflation-linked BTP, the fair value at the settlement date reflects also the interest accrued of the instrument accrued from the latest interest payment date to the date of settlement of the derivative. As such, both are considered the main sources of ineffectiveness.
The hypothetical derivative uses the fixed rate, which makes the present value at the settlement date equal to zero, while the actual derivative uses the interest rate agreed upon with the counterparty.
Financial statements of Poste Italiane at 31 December 2019 9. Hedging transactions
For the purposes of the prospective effectiveness test, different approaches have been applied, depending on the characteristics of the hedging swap. Specifically: � the “Critical terms” approach for derivatives for which it has been determined at inception that the characteristics of the indexed leg of the swap make it possible to replicate exactly the variable cash flows generated by the hedged item; � the “Dollar offset through the hypothetical derivative” approach for derivative contracts with a fixed rate applicable to a nominal amount growing constantly at six-month intervals until the derivative expires. For these contracts the prospective effectiveness test is performed by calculating the hedge ratio between the change in fair value of the hypothetical derivative and the change in fair value of the actual derivative123. The hedge is considered effective if the hedge ratio falls in the interval between 80% and 125%.
The table below shows the effects of hedging transactions, broken down by type, on profit or loss and the financial position.
Fixed income instruments, of which: 33,016 - 2,871 - 3,914 -
Nominal Carrying amount Change in value used for calculating hedge ineffectiveness
The following information is provided in accordance with accounting standard IAS 37 – Provisions, Contingent Liabilities and Contingent Assets.
Other cases are still pending and are still at the preliminary stage, relating to the appeals filed by Postel SpA against the payment orders for the periods from May 2009 to July 2019.
Finally, on 8 October 2019, INPS requested to regularise contributions from September 2014 to September 2019 at the non-harmonised CUAF rate of 4.40% of taxable income for social security purposes. Therefore, as of October 2019, Postel has adjusted to the payment of the CUAF contribution in the amount of 4.40%, subject to repetition reserve. For the previous period from September 2014 to the end of 2015, Postel appealed through administrative channels against the debt notices received from INPS with a request for payment of 4.40% by the CUAF. Taking into account the judgements at the first instance, the reasons given for the judgements and the latest appeals brought by INPS, the Company has adjusted its provisions for risks and charges based on the opinion of its legal advisors.
Autorità Garante della Concorrenza e del Mercato (AGCM - the Italian Antitrust Authority) On 9 March 2015, the Authority notified Poste Italiane of an investigation of BancoPosta RFC for alleged violation of articles 20, 21 and 22 of the Consumer Code, regarding the Libretto Smart product. On 21 December 2015, the AGCM notified Poste Italiane of its final ruling in which it deemed the Company’s conduct unfair and imposed a fine of €0.54 million, limited to a tenth of the maximum applicable amount taking into account the mitigating circumstance that Poste Italiane had adopted initiatives aimed at allowing customers to benefit from the bonus rate. Poste Italiane lodged an appeal against this ruling before the Lazio Regional Administrative Court, which has adjourned the case until a hearing on the merits to be set.
On 8 October 2018, the AGCM notified Poste Italiane of the launch of investigation PS11215 – pursuant to art. 27, paragraph 3 of Legislative Decree 206/05 (the Consumer Code) and art. 6 of the Regulation for Investigations – with an accompanying request for information pursuant to art. 12, paragraph 1 of the above Regulation. The investigation is in response to complaints filed on 24 July 2018 by Altroconsumo and on 8 August 2018 by Centro Tutela Consumatori e Utenti (two consumers’ associations). The Authority is primarily looking into an advertising campaign called Buoni e libretti – Buono a sapersi, promoting Interest-bearing Postal Certificates and Postal Savings Books via TV and press adverts. The investigation relates to the alleged violation of articles 21 and 22, paragraph 1 and 4 letter a) of the Consumer Code, as the effect of taxation was, in the Authority’s view, not clearly indicated.
On 29 October 2018, Poste Italiane replied to the request for information and, following the hearing held at the AGCM on 28 November 2018, sent the Authority the form for the presentation of commitments - pursuant to art. 27 paragraph 7 of the Consumer Code, art. 8 paragraph 7 of Legislative Decree 145/2007 and art. 9 of the aforementioned Regulation on investigation procedures - subsequently supplemented on 11 January 2019. On 1 April 2019, the Authority notified Poste Italiane that the investigation was closed and that it had accepted the commitments, which are now obligatory, without imposing a fine.
Autorità per le Garanzie nelle Comunicazioni (AGCOM - the Italian Communications Authority) Law Decree 201 of 6 December 2011, converted into Law 214 of 22 December 2011, transferred responsibility for regulation and supervision of the postal sector to the Italian Communications Authority (AGCom).
ii. AGCom Resolution 298/17/CONS regarding “Assessment of the net cost of the universal postal service for 2013 and 2014” was published on 6 September 2017. In addition to acknowledging that the cost is unfair, the Resolution quantified the cost of providing the Universal Postal Service in 2013 and 2014, respectively, as €393 million and €409 million, compared with compensation of €343 million and €336 million provided for in the Contratto di Programma. Again, no Compensation Fund was established for 2013 and 2014 and, on 6 November 2017, Poste Italiane had filed a legal challenge before the Lazio Regional Administrative Court against the above resolution (the case is still pending).
Bank of Italy On 23 May 2019, the Bank of Italy began inspections of specific post offices with the aim of verifying fulfilment of the obligations in terms of banking transparency. The inspections were concluded in the following month of July and the related Report has not been received yet. The inspections mentioned above, although territorial in nature, also concerned areas that can be traced back to the inspections carried out by the Authority in 2015 at the head office and mainly related to aspects such as the filing of contractual documentation, the management of unilateral amendment proposals to customers, as well as the handling of complaints and the application of economic conditions through the dedicated company system.
On 7 August 2019 a request was received from the Authority concerning data and information relating to the provision of investment services in the regions of Emilia Romagna, Marche and Umbria and in the province of Pescara. The reply was sent by the Company on 18 September 2019 together with, as requested, the names of the employees who have taken over responsibility for the areas concerned since 2016.
Garante per la protezione dei dati personali (the Data Protection Authority) On 15 January 2014, at the end of an investigation launched in 2009, the Authority imposed a fine of €0.34 million on Postel, which the company accounted for in its financial statements for 2013. The company appealed the Authority’s ruling before the Civil Court of Rome, requesting an injunction suspending its implementation, which was accepted by the judge with a ruling on 16 June 2014. On 21 January 2016, the designated judge reduced the fine by €0.1 million, rejecting the other preliminary exceptions raised on the merits. The Company appealed against the above judgement before the Court of Cassation for the part of the sanction not annulled by the Court. Postel has not yet been notified of the verdict at the conclusion of the Council Chamber hearing held on 12 November 2019. On 21 March 2017, the tax authorities notified the company of a payment order in which, in addition to requesting payment of a fine of €0.24 million, as reduced by the judgement from the Court of Rome, it also applied, among other things, an additional amount of €0.12 million. Postel appealed the order, resulting in cancellation of the fine of €0.12 million by the Court of Rome. The Guarantor appealed against this judgement to the Court of Cassation, notified on 3 August 2018, and Postel took steps to duly institute legal proceedings. The company has filed a formal request with the Authority in order to recover the sums in question (already paid by Postel following the Authority’s seizure of the related amounts from a third party) and, has also applied to the tax authorities for a refund, a response to which has yet to be received.
Under the definition provided by the CONSOB ruling of 28 July 2006, the Poste Italiane Group did not conduct any exceptional and/or unusual transactions126 in 2019.
MEF account, held at the Treasury - - 4,542 - - 4,542 4,542
Financial assets at amortised cost (62) (115) (39,402) (1,742) - (41,321) (11,181)
Technical provisions for insurance business - - - (71) - (71) -
Cash and deposits attributable to BancoPosta - - (3,318) - - (3,318) -
An analysis of the net funds of the Mail, Parcels and Distribution segment at 31 December 2019, in accordance with ESMA recommendation 319/2013, is provided below: ESMA net debt/(funds)
Balance at 31/12/2019 (€m) Capital outside ring-fence BancoPosta RFC Eliminations Poste Italiane SpA
Financial assets at fair value through profit or loss - (71) - (71) -
Cash and deposits attributable to BancoPosta - (3,318) - (3,318) -
An analysis of the net funds of the Parent Company outside the ring-fence at 31 December 2019, in accordance with ESMA recommendation 319/2013, is provided below: ESMA net financial indebtedness for capital outside ring-fence
At 31 December 2019, these assets concern reverse repurchase agreements entered into with primary financial intermediaries and entirely attributable to the Parent Company.
Financial assets at amortised cost 4,929 5,179 5,207 3,424 3,527 3,363
Financial statements of Poste Italiane at 31 December 2019 14. Additional information
Exposure to sovereign debt With regard to financial assets, as required by Communication DEM/11070007 of 28 July 2011, implementing Document 2011/266 published by the European Securities and Markets Authority (ESMA) and later amendments, the Group’s exposure to sovereign debt at 31 December 2019 is shown in the table below.
Italy 125,322 143,188 143,000 125,501 130,596 129,231 Financial assets at amortised cost 19,100 22,825 22,637 17,934 19,778 18,413 Financial assets at FVTOCI 106,170 120,308 120,308 106,745 109,995 109,995 Financial assets at FVTPL 52 55 55 822 823 823
Austria - - - 15 15 15 Financial assets at amortised cost - - - - - - Financial assets at FVTOCI - - - 15 15 15 Financial assets at FVTPL - - - - - -
Finland - - - 15 15 15 Financial assets at amortised cost - - - - - - Financial assets at FVTOCI - - - 15 15 15 Financial assets at FVTPL - - - - - -
France 151 203 203 151 173 173 Financial assets at amortised cost - - - - - - Financial assets at FVTOCI 151 203 203 151 173 173 Financial assets at FVTPL - - - - - -
Germany 52 62 62 49 57 57 Financial assets at amortised cost - - - - - - Financial assets at FVTOCI 50 60 60 47 56 56 Financial assets at FVTPL 2 2 2 2 1 1
LU1193254122 - MFX - GLOBAL FUND - ASSET GLOBAL FUND (PIMCO MULTI ASSET)
Investment in real estate assets, real property rights, including those resulting from property lease arrangements, participating interests in property companies and in units of alternative real estate funds
Nature of the involvement in the unconsolidated structured entity The purpose of Poste Vita’s investment in the funds is to diversify its portfolio of financial instruments intended to cover Class I products (Separately Managed Accounts), with the objective of mitigating the concentration of investments in Italian government. Certain details are provided below.
Description of the Plan The ILT Phantom Stock 2016-2018 Plan provides for the assignment to the Beneficiaries of rights to receive units representing the value of the Poste Italiane share (the so-called Phantom Stock), and the related bonus in cash, at the end of a vesting period. The number of phantom stocks awarded to each Beneficiary is dependent on achieving some conditions and targets over a three-year period. The Plan covers a medium- to long-term period. In particular, the plan includes three award cycles, corresponding to the financial years 2016, 2017 and 2018, each with a duration of three years.
Beneficiaries The Beneficiaries are: Poste Italiane’s Chief Executive Officer, in his role as General Manager, certain managers within the Poste Italiane Group, including key management personnel, Risk Takers who work for BancoPosta RFC and personnel belonging to the Poste Vita insurance Group.
EBIT over a three-year period at the end of each Performance Period. In addition, in the case of the General Manager (and Chief Executive Officer) and BancoPosta RFC’s Risk Takers, vesting of the Phantom Stocks is also subject to achievement of Qualifying Conditions, designed to ensure the stability of BancoPosta RFC’s capital and liquidity position, as follows: � Indicator of capital adequacy, based on CET 1 at the end of the period; � Indicator of short-term liquidity, based on LCR at the end of the period; � Indicator of risk-adjusted earnings, based on RORAC at the end of the period; this indicator has been introduced from the 2017-2019 cycle and only for the General Manager (and Chief Executive Officer).
For personnel belonging to the Poste Vita insurance Group, vesting of the Phantom Stocks, in addition to achievement of the Performance Hurdle (Group’s cumulative EBIT over a three-year period), is subject to achievement of the specific Qualifying Condition, namely the Solvency II ratio at the end of the period.
First Cycle 2016-2018 The total number of phantom stocks awarded to the 11 Beneficiaries of the First Cycle of the Plan outstanding at 31 December 2019 amounted to 139,604. The cost recognised for 2019 is approximately €0.9 million, whilst the liability recognised in amounts due to staff is approximately €1.4 million. Following the accrual of rights by certain Poste Italiane Group managers, other than the BancoPosta RFC’s Risk Takers and the Poste Vita Insurance Group’s personnel, and the General Manager, payments of €2.1 million were made during 2019.
Second Cycle 2017-2019 At 31 December 2019, the total number of phantom stocks awarded to the 43 Beneficiaries of the Second Cycle of the Plan amount to 499,228. The cost recognised for 2019 is approximately €3.4 million, whilst the liability recognised in amounts due to staff is approximately €5.7 million.
Third Cycle 2018-2020 At 31 December 2019, the total number of phantom stocks awarded to the 63 Beneficiaries of the Third Cycle of the Plan amount to 596,246. The cost recognised for 2019 is approximately €3 million, whilst the liability recognised in amounts due to staff is approximately €4.1 million.
Poste Italiane Group The Annual General Meeting of Poste Italiane SpA’s shareholders held on 28 May 2019 approved the information circular for the Equity-based incentive plan (ILT) – Performance Share Plan, prepared in accordance with art 84-bis of the Regulations for Issuers. This incentive scheme, set up in line with market practices, aims to link a portion of the variable component of remuneration to the achievement of earnings targets and the creation of sustainable shareholder value over the long term.
Beneficiaries The Beneficiaries are: Poste Italiane’s Chief Executive Officer, in his role as General Manager, certain managers within the Poste Italiane Group, including key management personnel, and some resources of BancoPosta RFC.
The Shares will be awarded by the end of the year following the end of the Performance Period as follows: � for BP Beneficiaries (including the General Manager) for 40% up-front and for the remaining 60% in two equal portions, deferred respectively for 2 and 4 years from the end of the Performance Period. A further Retention Period of one year will be applied to both the up-front and deferred portions; � for the Other Beneficiaries, the granting of Poste Italiane Shares is entirely up front at the end of a three-year Performance Period, with 60% of the Shares subject to a further two-year Lock-up Period.
In addition, for BP Beneficiaries (including the General Manager), the deferred shares will be awarded following the verification of the existence of capitalisation and liquidity levels.
First Cycle 2019-2021 The total number of Rights to receive Shares assigned for the First Cycle of the Plan concerns 109 Beneficiaries and was 656,996 units, whose unit fair value at the grant date (28 May 2019 for the General Manager and 7 October 2019 for the BP Beneficiaries and Other Beneficiaries) was €6.19, €8.29 and €8.88, respectively. The cost recognised for 2019 is approximately €1.7 million, equivalent to the equity reserve specifically created for this case. Finally, the unit fair value of each right is equal to its nominal value at the grant date (determined on the basis of stock exchange prices), discounted by the expected dividend rate and the risk-free interest rate.
The allocation of Phantom Stocks (MBO 2017 and 2018) and Rights to receive Shares (MBO 2019) is subject to the existence of a Performance Hurdle (Group Profitability): EBIT) and Qualifying Conditions as follows: � Capital adequacy: CET 1, risk tolerance level approved in the Risk Appetite Framework (RAF); � Short-term liquidity: LCR, risk tolerance level approved in the Risk Appetite Framework (RAF).
Determination of fair value and effects on profit or loss At 31 December 2019, the number of Phantom Stocks relating to the 2017 and 2018 MBO plans in place was 212,367, relating mainly to personnel employed by the Parent Company. An independent expert, external to the Group, was appointed to measure the value of the stocks, based on best market practices. The liability recognised at 31 December 2019 is €2 million, and payments of €77 thousand were also made during 2019.
The number of phantom stocks outstanding at 31 December 2019 totals 180,100. The liability recognised is €1.7 million while payments made during the year amounted to €0.9 million.
This item breaks down as follows: List of investments consolidated on a line-by-line basis
Name (Registered office) (€000) % interest Share capital Net profit / (loss) for the year Equity
Poste Tributi ScpA - in liquidation (Rome)* ** 100.00% 2,325 - (1,788)
Poste Insurance Broker Srl 100.00% 600 (39) 561 * The figures shown for these companies were prepared in accordance with IFRS and, as such, may vary from those contained in the respective financial reports, which were prepared in accordance with the Italian Civil Code and Italian GAAP.
** Poste Italiane SpA has committed to providing financial support to the subsidiaries, SDA Express Courier SpA and Poste Air Cargo Srl, for 2019 and Poste Tributi ScpA throughout its liquidation.
Address Software Srl (Rome) Subsidiary 293 51.00% 1,078 502 576 1,168 49
Conio Inc. (San Francisco) Associate 368 19.74% 1,611 551 1,060 180 (1,155)
** The amount includes the amount represented by dividends and measurement of the investments at equity.
The information required by art. 1, paragraphs 125 and 129 of Law 124 of 4 August 2017 is provided below.
Poste Italiane Ministry of Education, Universities and Research Financed training and research projects 671
The Group’s purchase commitments break down as follows: Commitments Description (€m) 31/12/2019 31/12/2018
Moreover, at 31 December 2019, EGI SpA has given commitments to purchase electricity, with a total value of €23 million, on regulated forward markets in 2020. At 31 December 2019, the corresponding market value is €20 million.
At 31 December 2019, the item Lease contracts includes commitments that do not fall under IFRS 16 - Leases.
The following table shows fees payable to the Parent Company’s auditor, PricewaterhouseCoopers SpA, and companies within its network for 2019, presented in accordance with art. 149 duodecies of the CONSOB’s Regulations for Issuers: Disclosure of fees paid to Independent Auditors
BANCOPOSTA RFC SEPARATE REPORT FOR THE YEAR ENDED 31 DECEMBER 2019
Part E – Information on risks and related hedging policies 625
Assets (figures in €) 31 December 2019 31 December 2018 10. Cash and cash equivalents 4,313,694,951 3,327,674,415 20. Financial assets measured at fair value through profit or loss 70,661,465 58,041,524 a) financial assets held for trading - b ) financial assets designated at fair value - c ) other financial assets mandatorily measured at fair value 70,661,465 58,041,524 30. Financial assets measured at fair value through other comprehensive income 36,798,745,848 32,040,011,924 40. Financial assets measured at amortised cost 40,950,230,817 33,743,062,105 a) due from banks 4,694,045,131 1,400,368,286 b) due from customers 36,256,185,686 32,342,693,819 60. Adjustments for changes in hedged financial assets portfolio (+/-) - 80. Property, plant and equipment - 110. Non-current assets and disposal groups held for sale - -
b) financial assets measured at fair value through other comprehensive income 1,651,673 769,548 140. Profits//Losses from contract amendments without termination - 150. Net income from banking activities 5,365,820,617 5,619,804,107 b) other administrative expenses (4,501,967,416) (4,603,752,497)
180. Net losses/recoveries on property, plant and equipment - 190. Net losses/recoveries on intangible assets - 200. Other operating income/(expense) 32,420,978 (31,424,095)
220. Profits/(Losses) on investments - 230. Profits/(Losses) on fair value measurement of property, plant and equipment and intangible assets - 250. Profits/(Losses) on disposal of investments - 260. Income/(Loss) before tax from continuing operations 844,210,198 829,913,039 270. Taxes on income from continuing operations (233,524,285) (233,104,453)
280. Income/(Loss) after tax from continuing operations 610,685,913 596,808,586 290. Income/(Loss) after tax from discontinued operations - 300. Profit/(Loss) for the year 610,685,913 596,808,586
Other components of comprehensive income after taxes reclassified to profit or loss 100. Hedges of foreign investments - 130. Hedges (elements not designated) - 140. Financial assets (other than equity instruments) measured at fair value through other comprehensive income 1,041,309,295 (1,622,947,631)
- dividends received on investments - - - disposal of property, plant and equipment - - - disposal of intangible assets - - - disposal of business division - 2. Cash flow used for - - - acquisition of property, plant and equipment - - - acquisition of intangible assets - - - acquisition of business division - -
- issuance/purchase of treasury shares - - - issuance/purchase of equity instruments - - - dividends and other payments (596,808,586) (374,979,647)
NET CASH FLOW GENERATED / (USED) DURING THE YEAR 986,020,536 110,510,711
Cash and cash equivalents at beginning of the year 3,327,674,415 3,217,163,704
BancoPosta RFC Separate report for the year ended 31 December 2019 Financial Statements
Part A – Accounting policies 129. Under the indirect method, net cash from operating activities is determined by adjusting profit/(loss) for the year to reflect the impact of non-cash items, any deferment or provisions for previous or future operating inflows or outflows, and revenue or cost items linked to cash flows from investing or financing activities.
Section 1 – Declaration of compliance with international financial reporting standards The Separate Report has been prepared in compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). These were endorsed for application in the European Union by European Regulation (EC) 1606/2002 of 19 July 2002, as transposed into Italian law by Legislative Decree 38 of 28 February 2005 governing the introduction of IFRS into Italian legislation. The term “IFRS” means all International Financial Reporting Standards, all International Accounting Standards (IAS), and all interpretations of the International Financial Reporting Interpretations Committee (IFRIC) previously known as the Standing Interpretations Committee (SIC) endorsed for application in the European Union by EU Regulations issued prior to 5 March 2020, the date on which the Board of Directors of Poste Italiane SpA approved the BancoPosta RFC Separate Report as part of Poste Italiane SpA’s Annual Report.
The relevant information is provided in note 2.6 – New Accounting standards and interpretations and those soon to be effective – in the section – financial statements of Poste Italiane – of this Annual Report.
The accounting policies and the recognition, measurement and classification criteria adopted in this Report are consistent with those used to prepare the Separate Report at 31 December 2018.
Section 3 – Events after the end of the reporting period Regarding to the possible medium-term impacts of the spread in Italy of the COVID-19, see note 13 – Events after the end of the reporting period - in the section – financial statements of Poste Italiane – of this Annual Report.
The other events after the end of the reporting period of this Separate Report are described in the Notes below and no other significant events have occurred after 31 December 2019.
Assets 20. Financial assets measured at fair value through profit or loss 71 - 58 a ) financial assets held for trading - - - - b) financial assets measured at fair value - - - - c) other financial assets mandatorily measured at fair value 71 - 58 30. Financial assets measured at fair value through other comprehensive income 36.799 - 32.040 40. Financial assets measured at amortised cost 40.950 651 33.743 844
Liabilities and equity 10. Financial liabilities measured at amortised cost 71.537 58 64.203 79 a) due to banks 7.186 - 5.985 - b) due to customers 64.351 58 58.218 79 c) debt securities in issue - - - 20.
The provision of services to BancoPosta RFC by Poste Italiane SpA functions is governed by the specific Regulation governing BancoPosta RFC’s contracting out and outsourcing process, approved by the Board of Directors of Poste Italiane SpA130.
These Regulations, in execution of the provisions set out in the Regulations for ring-fenced capital, govern and formalise the process of outsourcing BancoPosta’s Corporate Functions to Poste Italiane in accordance with the relevant regulations, identifying the operational phases, roles and responsibilities of the Bodies and Corporate Functions involved in various ways. The general policies and instructions contained in the General Guidelines in relation to transfer pricing are detailed in specific Operating Guidelines, jointly developed by BancoPosta and other Poste Italiane SpA functions. The Operating Guidelines establish, among other things, the applicable levels of service and transfer prices and are effective following an authorisation process involving the relevant Functions, the Chief Executive Officer and, where required, the Company’s Board of Directors. When BancoPosta intends to contract out a major operating process or a control procedure, whether in its entirety or in part, to Poste Italiane SpA in accordance with specific Operating Guidelines, it must give prior notice to the Bank of Italy. In accordance with Bank of Italy Circular 285 issued on 17 December 2013, Part Four, Chapter 1 BancoPosta, Section II, paragraph 2, the Board of Statutory Auditors is required to verify, at least every six months, that the policies adopted are fit for purpose and are in compliance with the related statutory requirements and supervisory standards.
On 9 March 2015, the Authority notified Poste Italiane of an investigation of BancoPosta RFC for alleged violation of articles 20, 21 and 22 of the Consumer Code, regarding the Libretto Smart product. On 21 December 2015, the AGCM notified Poste Italiane of its final ruling in which it deemed the Poste Italiane’s conduct unfair and imposed a fine of €0.54 million, limited to a tenth of the maximum applicable amount taking into account the mitigating circumstance that Poste Italiane had adopted initiatives aimed at allowing customers to benefit from the bonus rate. Poste Italiane lodged an appeal against this ruling before the Lazio Regional Administrative Court, which has adjourned the case until a hearing on the merits to be set.
On 29 October 2018, Poste Italiane replied to the request for information and, following the hearing held at the AGCM on 28 November 2018, sent the Authority the form for the presentation of commitments - pursuant to art. 27 paragraph 7 of the 130. In its meeting of 31 January 2019, the Board of Directors approved the Regulation governing BancoPosta RFC’s contracting out and outsourcing process, combining the guidelines outlined separately in the General guidelines governing the process of contracting out BancoPosta’s corporate functions to Poste Italiane and the Guidelines governing BancoPosta RFC’s outsourcing process.
Consumer Code, art. 8 paragraph 7 of Legislative Decree 145/2007 and art. 9 of the aforementioned Regulation on investigation procedures - subsequently supplemented on 11 January 2019. On 1 April 2019, the Authority notified Poste Italiane that the investigation was closed and that it had accepted the commitments, which are now obligatory, without imposing a fine.
On 23 May 2019, the Bank of Italy began inspections of specific post offices with the aim of verifying fulfilment of the obligations in terms of banking transparency. The inspections were concluded in July and the related Report has not been received yet. The inspections mentioned above, although territorial in nature, also concerned areas that can be traced back to the inspections carried out by the Authority in 2015 at the head office and mainly related to aspects such as the filing of contractual documentation, the management of unilateral amendment proposals to customers, as well as the handling of complaints and the application of economic conditions through the dedicated company system.
With regard to the inspection conducted by the Bank of Italy in 2017, with the aim of assessing the governance, control and operational and IT risk management systems in relation to BancoPosta’s operations, the process of implementing the relevant compliance initiatives is still in progress and work is proceeding according to the established timing.
On 12 February 2019, the CONSOB requested clarification regarding the measures adopted to ensure compliance with the rules of conduct for dealing with customers with reference to: i) the provision of advice on insurance investment products; ii) obligations regarding Product Governance and the incentive scheme for network personnel in relation to the distribution of insurance investment products. The above information was provided in a specific response submitted to the regulator on 15 February 2019.
On 7 August 2019 a request was received from the Authority concerning data and information relating to the provision of investment services in the regions of Emilia Romagna, Marche and Umbria and in the province of Pescara. The reply was sent by Poste Italiane on 18 September 2019 together with, as requested, the names of the employees who have taken over responsibility for the areas concerned since 2016.
On 10 October 2019, the CONSOB requested, by way of short notice, some clarifications on the report received from the company Sagitta SGR on 5 August regarding the representation of the information relating to the Obelisco real estate Fund in the statement of account of the Customer Securities Dossier. The reply was sent by Poste Italiane on 17 October 2019.
On 29 October 2019, the CONSOB requested information on the correct fulfilment of transaction reporting obligations. The reply was sent by Poste Italiane on 13 December 2019.
1 – Financial assets measured at fair value through profit or loss a) recognition Financial assets measured at fair value through profit or loss are initially recognised on the settlement date for debt and equity securities, whereas, for derivative contracts, on the subscription date. Financial assets are initially recognised at fair value which is generally the price paid. Changes in fair value between the trade date and the settlement date are recognised.
This item comprises: � debt securities and loans that are classified in the “Other/Trading” business model (thus not in the “Hold to Collect” and “Hold to Collect and Sell” business models) or fail to meet the SPPI test131; � equity instruments held for trading or that were not initially recognised at fair value through other comprehensive income; � derivative contracts, except those designated as hedges, that are classified as assets or liabilities held for trading, depending on whether their fair value is positive or negative; positive and negative fair values arising from transactions with the same counterparties are offset during collateralisation/liquidation, where allowed by contract c) measurement and recognition of gains and losses These financial assets are recognised at fair value with any changes in fair value recognised in profit or loss in line “Item 80 - Profits/(Losses) on trading” and in line “Item 110 – Profits/(Losses) on other financial assets/liabilities measured at fair value through profit or loss”.
131. The acronym SPPI - Solely Payments of Principal and Interest defines financial assets held solely to collect the relevant contractual cash flows, as represented by payments of principal and interest accrued on the principal outstanding at specified dates. The SPPI test is intended to check that the characteristics of the instruments are consistent with this objective.
2 – Financial assets measured at fair value through other comprehensive income a) recognition Financial assets measured at fair value through other comprehensive income are initially recognised on the settlement date. These assets are initially recognised at fair value which is generally the price paid. Changes in fair value between the trade date and the settlement date are recognised.
b) classification This item includes financial assets held in connection with a business model where financial instruments are held to collect contractual cash flows and for sale (“Hold to Collect and Sell” business model), with the relevant contract calling for the payment, at specified dates, of principal and interest accrued on the principal outstanding (SPPI).
c) measurement and recognition of gains and losses Financial assets other than equity instruments are measured at fair value and any subsequent change in fair value is recognised through other comprehensive income (OCI) until the financial asset is either derecognised or reclassified, except for currency gains and losses recognised in the statement of profit or loss in “Item 80 – Profits/(Losses) on trading”. When the financial asset is derecognised, the related cumulative gains and losses recognised in OCI are reclassified to profit and loss in “Item 100 – Profits/Losses on disposals or repurchases”.
Equity securities elected to be classified in this item are measured at fair value and any changes in such fair value are recognised in line Item 110 – Valuation reserves without subsequent recycling to profit or loss, not even in case of disposal. The only component that is reported in profit and loss is the related dividends.
b) classification This item includes financial assets held in connection with a business model where the objective is the collection of the relevant cash flows (Hold to Collect - HTC business model), represented by payments, at specified dates, of principal and interest accrued on the principal outstanding (SPPI). The business model on which the classification of financial assets is based permits the sale of such assets; if the sales are not occasional, and are not immaterial in terms of value, consistency with the HTC business model should be assessed.
In addition to debt securities that reflect the characteristics outlined above, this item comprises mainly deposits at the MEF and the trade receivables.
The carrying amount of financial assets measured at amortised cost is adjusted to take into account expected credit losses, as illustrated in the specific section. These expected credit losses are recognised in profit and loss in line Item 130 – Net losses/ recoveries due to credit risk.
d) derecognition These financial assets are derecognised when the contractual rights to the cash flows of those financial assets lapse or on the disposal of the financial asset and all risks and rewards relating to the financial asset are substantially transferred. Any securities received as part of a transaction entailing subsequent re-sale and the delivery of securities as part of a transaction entailing their subsequent repurchase are not either recognised or derecognised.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges after initial recognition is recognised in a specific equity reserve (the Cash flow hedge reserve, within line Item 110 – Valuation reserve). A hedging transaction is generally considered highly effective if, both at inception of the hedge and on an ongoing basis, changes in the expected future cash flows of the hedged item are substantially offset by changes in the fair value of the hedging instrument. If the hedging transaction is not fully effective, the gain or loss arising from a change in fair value relating to the ineffective portion is recognised in line Item 90 - Profits/(Losses) on hedging.
Foreign currency items are translated at each reporting date as shown below: � monetary items at closing exchange rates; � non-monetary items are recognised at their historical cost translated at the transaction date spot rate; � non-monetary items measured at fair value at closing exchange rates.
Revenue recognition Revenue deriving from contracts with customers reflects the consideration to which the entity expects to be entitled in exchange for those goods and services (transaction price).
Every single supplier obligation with the customer is considered, measured and recognised separately. This approach involves a preliminary accurate analysis of the contract to identify every “single product/service” or every “single component” of a product /service that the supplier promises to provide, attributing to each the relevant consideration, and to monitor each such obligation during the life of the contract (in terms both of manner and timing of fulfilment and the customer’s level of satisfaction).
Revenue from activities carried out in favour of or on behalf of the state is recognised on the basis of the amount effectively accrued, with reference to the laws and agreements in force, taking account, in any event, of the provisions contained in legislation regarding the public finances. Returns on the portion of current account deposits deposited with the MEF are determined on an accruals basis, using the effective interest rate method, and classified in “Item 10 – Interest and similar income”. The same classification is applied to income from euro area government securities, in which deposits paid into accounts by private customers are invested.
Moreover, dividends are recognised in profit or loss when the right to receive payment is established, which generally corresponds with approval of the distribution by the shareholders of the investee company.
On the other hand, a simplified approach to measure the loss provisions is applied to trade receivables that do not contain a significant financing component pursuant to IFRS 15. The simplified approach is based on a matrix of observed historical losses. No significant increase in credit risk is determined but the loss allowance is based on lifetime expected losses.
Post-employment benefits consist of two types: � Defined benefit plans Defined benefit plans include employee termination benefits payable to employees in accordance with art. 2120 of the Italian Civil Code for the part accrued until 31 December 2006. In fact, following the reform of the supplementary pension fund, from 1 January 2007 vesting employee termination benefits (TFR) must be paid into a supplementary pension fund or into a Treasury Fund set up by INPS. Accordingly, BancoPosta RFC’s defined benefit liability is applicable only to the provisions made up to 31 December 2006132. Under these plans, given that the amount of the benefit to be paid is only quantifiable following the termination of employment, the related effects on profit or loss or the financial position are recognised on the basis of actuarial calculations in compliance with IAS 19. In particular, the liability to be paid on cessation of employment is calculated using the projected unit credit method and then discounted to recognise the time value of money prior to the liability being settled. The liability recognised in the Separate Report is based on calculations performed by independent actuaries. The calculation takes into account the employee termination benefits accrued for work already performed and is based on actuarial assumptions that mainly concern: demographic assumptions (such as employee turnover and mortality) and financial assumptions (such as rate of inflation and a discount rate consistent with that of the liability). As BancoPosta RFC is not liable for employee termination benefits accruing after 31 December 2006, the actuarial calculation of employee termination benefits no longer takes account of future salary increases. Actuarial gains and losses are recognised directly in equity at the end of each reporting period, based on the difference between the carrying amount of the liability and the present value of the BancoPosta RFC’s obligations at the end of the period, due to changes in the actuarial assumptions.
� Defined contribution plans Employee termination benefits payable pursuant to art. 2120, Italian Civil Code fall within the scope of defined contribution plans provided they vested subsequent to 1 January 2007 and were paid into a Supplementary Pension Fund or a Treasury Fund at INPS. Contributions to defined contribution plans are recognised in profit or loss when incurred, based on their nominal value.
Share-based payments Share-based payment transactions may be settled in cash, equity instruments, or other financial instruments. In the event of share-based payment transactions BancoPosta RFC is required to measure the goods or services acquired and the liability incurred at fair value.
In the case of equity-settled share-based payment transactions: � an increase in shareholders’ equity is recorded as a matching entry at cost; � if the fair value of the goods or services received or acquired cannot be reliably determined, this value must be estimated indirectly on the basis of the fair value of the equity instruments granted at the grant date.
For the purposes of calculating impairment and determining the stage allocation, the main factors estimated are as follows, relating to the internal model developed for Sovereign, Banking and Corporate counterparties: � estimates of ratings by counterparty; � estimation of the probability of default “PD” for counterparties.
For BancoPosta RFC, these include the following types of financial instrument: � Straight Italian and international government and non-government bonds, quoted on inactive markets or unquoted: valuation is based on discounted cash flow techniques involving the computation of the present value of future cash flows, inputting rates from yield curves incorporating spreads reflecting credit risk that are based on spreads determined with reference to quoted and liquid benchmark securities issued by the issuer, or by other companies with similar characteristics to the issuer. Yield curves may be slightly adjusted to reflect liquidity risk relating to the absence of an active market.
� Unquoted equities, for which it is to use the price of quoted equities of the same issuer as a benchmark. The price inferred in this manner is adjusted through the application of a discount, quoted by primary market counterparties, representing the cost implicit in the process to align the value of the unquoted shares to the quoted ones.
� Financial liabilities either quoted on inactive markets or not at all, consisting of repurchase agreements used to raise finance are valued using discounted cash flow techniques involving the computation of future contractual cash flows. Repos may also be used for collateral and in such cases fair value need not be adjusted for the counterparty’s credit risk.
Sensitivity analysis of recurring fair value measurements classified in Level 3 of the hierarchy is conducted for the Series C Visa Incorporated Convertible Participating Preferred Stock. Measurement of these financial instruments is in fact subject to change following alterations that may occur in the discount factor applied in determining fair value, in order to take into account the illiquid nature of the shares. This discount factor, estimated using an internal valuation technique, is above all influenced by the annual volatility of the underlying shares. Applying the maximum volatility according to the technique used, the potential reduction in fair value could reach approximately 11%.
A.4.5.1 Assets and liabilities measured at fair value on a recurring basis by fair value level
1. Financial assets measured at fair value through profit or loss - - 71 - 13 45 a) financial assets held for trading - - - - - b ) financial assets designated at fair value - - - - - c ) other financial assets mandatorily measured at fair value - - 71 - 13 45 2. Financial assets measured at fair value through other comprehensive income 36,506 293 - 31,780 260 1. Financial liabilities held for trading - 15 - - - 2. Financial liabilities designated at fair value - - - - - - * Notes on this position are provided in Part B, Assets, Table 2.5.
Financial assets measured at fair value through profit or loss Financial assets measured at fair value through other comprehensive income
In the period under review, changes of €26 million relate to the change in fair value of Series C Visa Incorporated Convertible Participating Preferred Stock.
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Financial assets measured at amortised cost 40,950 20,613 5,231 14,728 33,743 16,780 4,660 10,620 2. Property, plant and equipment held for investment purposes 3. Non-current assets and disposal groups held for sale - - - - - - - 1. Financial liabilities measured at amortised cost 71,537 - 12,205 59,343 64,203 - 8,488 55,729 2. Liabilities associated with non-current assets held for sale and discontinued operations
(€m) Total at 31/12/2019 Total at 31/12/2018 b) Central bank deposits 814 348
Cash is comprised of cash at post office counters and companies that provide cash transportation services, consisting of cash deposits on postal current accounts, postal savings products (Interest-bearing Postal Certificates and Postal Savings Books) or advances obtained from the Treasury to fund post office operations. This cash may only be used in settlement of these obligations. Cash includes foreign banknotes equivalent to €12 million.
Investments in equity instruments, totalling €71 million, reflect the fair value of 32,059 Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock) received for the disposal of the Visa Europe Ltd. share to Visa Incorporated in 2016. These shares are convertible at the rate of 13,884133 ordinary shares for each C share, minus a suitable illiquidity discount, considering the staggered conversion between the fourth and the twelfth year after the closing. The overall change in fair value during the year is a positive €26 million and is recorded in profit and loss under “Item 110 - Profits (Losses) of other financial assets and liabilities mandatorily measured at fair value through profit or loss”.
In 2019, BancoPosta RFC entered into a forward sale agreement for 400,000 ordinary Visa Incorporated shares at a price of US$153.46 per share and at an exchange rate of 1.2037. The total consideration is €51 million and the settlement date is 1 March 2021. The ordinary shares involved in the forward sale amount to approximately 28,810 Visa Incorporated (Series C) preference shares held in portfolio at the applicable conversion rate at 31 December 2019. The fair value of the forward sale has decreased by €15 million in the reporting period, reflecting movements in both the price of the shares and the euro/dollar exchange rate. This reduction has been recognised in profit or loss in “Item 80 - Profits/(Losses) on trading”.
Finally, in 2019, BancoPosta RFC sold its previous holding of 11,144 class C Visa Incorporated shares following their prior conversion into class A shares. This transaction generated a capital gain of €1 million recognised in profit and loss under “Item 110 - Profits (Losses) of other financial assets and liabilities mandatorily measured at fair value through profit or loss”.
In June 2019, the outstanding amount of €8 million due following the disposal of Visa Europe Ltd. share to Visa Incorporated was collected.
Investments in debt securities are recognised at fair value, for €36,799 million (of which €318 million in accrued interest).
Items/Amounts (€m) Total at 31/12/2019 Total at 31/12/2018 b) Public Admin. entities 36,799 32,040 d) Other financial companies - of which: insurance companies - e ) Non-financial companies - of which: insurance companies - b ) Public Admin. entities - d ) Other financial companies - of which: insurance companies - e ) Non-financial companies - -
Debt securities issued by governments include Eurozone fixed income government bonds, represented by Italian government bonds with a nominal value of €31,170 million. Total fair value fluctuation for the period was positive for €3,758 million, with gains of €1,702 million recognised in the relevant equity reserve in relation to the portion of the portfolio not hedged by fair value hedges, and a gain of €2,056 million recognised through profit and loss in relation to the hedged portion.
3.3 Financial assets measured at fair value through other comprehensive income: gross amount and overall impairment losses/reversals
Level 1 Level 2 Level 3 Stage 1 and 2 1.2 Reverse repurchase agreements 1.4 Credit cards, personal and salary loans
“Other loans” primarily consist of: � €7,081 million, €17 million being accrued interest, in public customers’ current account deposits deposited with the MEF, which earn a variable rate of return, calculated on a basket of government securities135. The deposit has been adjusted to reflect accumulated impairments of approximately €3 million, to reflect the risk of counterparty default (unchanged compared to 31 December 2018); � €1,040 million in guarantee deposits provided to counterparties for interest rate swaps in the amount of €600 million (with collateral provided by specific Credit Support Annexes) entered into for cash flow and fair value hedging purposes by BancoPosta RFC, repurchase agreement with a Central Counterparty for €169 million and for collateral deposited with the Central Counterparty, in relation to the clearing system, in the amount of €271 million (i.e. (Default Fund)136; � €651 million in amounts receivable from Poste Italiane SpA’s functions outside the ring-fence, €650 million of which relates to Poste Italiane SpA’s Finance function’s intersegment financial account, used for the processing of payments to and from third parties; 134. The Central Counterparty is an entity that acts as an intermediary in a transaction between two parties, avoiding the parties’ exposure to the risk that one of the counterparties to the agreement may default and guaranteeing successful completion of the transaction.
“Other debt securities” include Italian fixed income government bonds and securities guaranteed by the Italian State for €21,175 million. Their carrying amount of €25,064 million reflects the amortised cost of unhedged fixed income instruments, totalling €10,047 million, the amortised cost of fair-value hedged fixed income bonds, totalling €12,146 million, increased by €2,871 million to take into account the effects of the hedge (€1,902 million related to 2019). The value of these securities was adjusted to take into account the related impairments. Accumulated impairments at 31 December 2019 amount to approximately €8 million (€9 million at 31 December 2018).
Securities with a nominal value of €5,457 million are encumbered as follows: � €4,929 million, measured at amortised cost for €5,179 million (Part B, Other Information, Table 3), and delivered to counterparties in connection with repurchase agreements concluded at 31 December 2019; � €528 million, measured at amortised cost for €527 million (Part B, Other Information, Table 3), and delivered to counterparties in connection with interest rate swaps and repurchase agreements concluded in the year under review.
137. The rate applied in overnight lending and calculated as the weighted average of overnight rates for transactions on the interbank market reported to the European Central Bank by a panel of banks operating in the euro zone (the biggest banks in all the Euro zone countries).
4.3 Financial assets measured at amortised cost: breakdown of receivables due from customers by debtor/issuer
Securities related to “Other financial companies” for an amortised cost of €3,946 million refer to fixed-rate securities for a total nominal amount of €3,750 million issued by Cassa Depositi e Prestiti and guaranteed by the Italian State.
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 * The settlement price of derivatives involving the exchange of principal (securities or other assets) has been indicated, as required by Bank of Italy Circular 262/2005.
Section 7 – Investments – Item 70 There are no investments in subsidiaries, joint arrangements or companies subject to significant influence.
Section 9 – Intangible assets – Item 90 There are no intangible assets.
Deferred tax liabilities through equity 258 49 55 10 313 59
(€m) Total at 31/12/2019 Total at 31/12/2018 2. Increases 2 12 2.1 Deferred tax assets recognised in the year 2 12 a) relating to previous years 1 b ) due to changes in accounting policies - 1 2.2 New taxes or tax rate increases - 3.
Decreases (60) (15) 3.1 Deferred tax assets derecognised in the year (60) (15)
b) write-downs of non-recoverable items (5) c ) due to changes in accounting policies - 3. 2 Reduction of tax rate - a ) transformation into tax credit pursuant to Law 214/2011 - 10. 3 bis Movements in deferred tax liabilities under Law 214/2011 Nil.
10.4 Movements in deferred tax liabilities through profit or loss Nil.
(€m) Total al 31.12.2019 Total al 31.12.2018 2.1 Deferred tax assets recognised in the year (416) (755)
Assets/ (Liabilities) due from and to Poste Italiane outside the ring-fence
Current tax liabilities due to Poste Italiane outside the ring-fence (Item 80 Liabilities)
“Other items” include mainly: � €1,357 million in stamp duty accrued to 31 December 2019 payable by holders of outstanding Interest-bearing Postal Certificates138. An equal amount has been recognised in “Other liabilities” as tax payables (Part B, Liabilities, Table 8.1) until expiration or early extinguishment of Interest-bearing Postal Certificates, which is the date on which the tax must be paid to the authorities; � €120 million relating to stamp duty charged to Postal Savings Books, which BancoPosta RFC pays in virtual form as required by law.
138. Introduced by article 19 of Law Decree 201/2011, converted as amended by Law 214/2011, in accordance with the MEF Decree dated 24 May 2012: Manner of implementation of paragraphs from 1 to 3 of article 19 of Law Decree 201 of 6 December 2011, on stamp duty on current accounts and financial products (Official Gazette 127 of 1 June 2012).
Section 1 – Financial liabilities measured at amortised cost – Item 10 1.1 Financial liabilities measured at amortised cost: breakdown of due to banks by type
At 31 December 2019, €6,690 million is due to banks under “Loans, Repurchase agreements” entered into with primary financial institutions involving securities with a total nominal value of €6,298 million. These regard €5,302 million in Long Term Repos and €1,388 million in ordinary loan transactions, with the resulting proceeds invested in Italian fixed income government securities and utilised as funding for incremental deposits used as collateral.
The sub-item “Other payables” includes €112 million in guarantee deposits relating to sums paid to counterparties with which Repo transactions are in place (collateral provided for by specific Global Master Repurchase Agreements).
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Current accounts and demand deposits 53,555 x x x 50,618 x x x 4. Obligations to repurchase equity instruments - x x x - x x x
The sub-item “Current accounts and demand deposits” include €5,219 million in postal current accounts held by PostePay SpA, €227 million in postal current accounts held by PosteVita SpA and €58 million in current accounts held by Poste Italiane outside the ring-fence.
The sub-item “Loans, Other” consist of the net amount of €4,542 million deposited in the MEF account held at the Treasury, which breaks down as follows: � the balance of cash flows for advances, amounting to €4,397 million, represents the net amount payable as a result of advances from the MEF to meet the cash requirements of BancoPosta; � net cash flow receivable for postal savings management of €47 million, due to the excess repayments on deposits made in the last two days of the year in question and settled in the first few days of the following year; at 31 December 2019, the balance consisted of a payable of €25 million owed to Cassa Depositi e Prestiti and a receivable of €72 million owed to the MEF for issues of postal savings bonds attributable to Cassa Depositi e Prestiti; � liabilities in connection with robberies suffered by Post Offices of €158 million, relating to obligations assumed towards the MEF on behalf of the Treasury as a result of theft and embezzlement; these obligations derive from withdrawals made from the Treasury, which are necessary to replenish the cash shortfall due to these criminal events so as to ensure the continuity of the Post Offices’ operations; � amounts payable for operational risks for €34 million regard the portion of advances obtained to fund operations, in relation to which asset under recovery is certain or probable.
The Level 2 fair value refers to the repurchase agreements while the fair value of the remaining instruments of this line item approximates to its carrying amount and it is consequently classified as Level 3.
Section 3 – Financial liabilities measured at fair value – Item 30 No financial liabilities are held in portfolio measured at fair value through profit or loss (the “fair value option”).
Credit Commodities Other 1. Financial assets measured at fair value through other comprehensive income 2. Financial assets measured at amortised cost 2,876 x - - x x x - x x 2.
Section 5 – Adjustments for changes in hedged financial liabilities portfolio – Item 50 No macro-hedges have been arranged at the reporting date.
Items in process: 844 728 - amounts to be credited to Postal Savings Books 212 204
“Contract liabilities” are mainly due to the placement of loan products, as shown in the following table: Description (€m) Balance at 31/12/2018 Increases / (Decreases)
Liabilities for commissions to be relegated refer to the estimate of the commissions to be relegated to partners for the contractually agreed early repayment of loan products placed after 1 January 2018.
BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part B – Information on the statement of financial position
9.2 Other information Measurement of the liability entails actuarial computations for which the following assumptions were used in 2019 and 2018: Economic and financial assumptions 31/12/2019
Items/Amounts (€m) Total at 31/12/2019 Total at 31/12/2018 1. Provisions for credit risk relating to financial commitments and guarantees given - 2. Provisions for other commitments and guarantees given - 3. Provisions for retirement benefits - 4.
10.3 Provisions for credit risk relating to financial commitments and guarantees given
Provisions for disputes with third parties regard expected liabilities deriving from different types of legal and out-of-court disputes with suppliers and third parties, the related legal expenses, administrative and penal sanctions and compensation payable to customers. During the year, net provisions of €7 million regard an update of the estimate of the liabilities and the related legal expenses, taking account of both the overall value of negative outcomes in terms of litigation.
Provisions for 2019, totalling €33 million, mainly reflect risks associated with the distribution of postal savings products issued in previous years and the adjustment of liabilities due to adjustments and settlements to income from previous years. During the year, the provision in question was utilised for a total of €193 million: (i) €100 million refer to liabilities defined in favour of customers subscribing to the Immobiliare Obelisco (expired on 31 December 2018) and Europa Immobiliare I funds, in relation to the voluntary protection initiatives approved by the Board of Directors of Poste Italiane and undertaken during 2019; (ii) €67 million refer to liabilities defined in favour of INPS, following the agreement signed between the parties in February 2019.
Other information 1. Commitments and guarantees given (other than those measured at fair value) Nil.
Portfolio (€m) Total at 31/12/2019 Total at 31/12/2018 1. Financial assets measured at fair value through profit or loss - 2. Financial assets measured at fair value through other comprehensive income 7,329 5,179 3. Financial assets measured at amortised cost 5,707 3,773 4. Property, plant and equipment - of which: property, plant and equipment qualifying as inventories - -
5. Financial assets offset in the financial statements or subject to framework master netting agreements or similar arrangements
BancoPosta RFC is not a party to enforceable master netting agreements or similar arrangements meeting the requirements of IAS 32, paragraph 42 for offsetting in the financial statements but used standard bilateral netting agreements that allow, in the event of the counterparty’s default, the offsetting of debit and credit positions in relation to derivative financial instruments and securities financing transactions (SFT). In particular, there are ISDA agreements for derivative transactions and GMRAs for repurchase agreements.
FY 2018 1. Financial assets measured at fair value through profit or loss - - - - 1. 1 Financial assets held for trading - - - - 1. 2 Financial assets designated at fair value - - - - 1. 3 Other financial assets mandatorily measured at fair value - - - - 2. Financial assets measured at fair value through other comprehensive income 1,012 - x 1,012 981 3. Financial assets measured at amortised cost 535 65 - 600 549 of which: interest income on impaired financial assets - - - - of which: interest income on financial leases - - - - -
The sub-item Financial liabilities reflects mainly interest income accruing during the year on reverse repos.
The sub-item Financial assets includes interest expense to RFC totalling €4 million and interest expense accrued during the year for repurchase agreements totalling €5 million.
Service/Amounts (€m) FY 2019 FY 2018 c) management, brokerage and advisory services: 2,837 2,617 4. securities custody and administration 3 4 7. order receipt and transmission 4 3 8.2 relating to financial structuring - 9. arrangement of third-party services: 2,828 2,608 d) collection and payment services 703 994 h) multilateral trading services - i ) current account maintenance and management 242 239
“Management, brokerage and advisory services” include, within the context of the distribution of other products, fees receivable in return for the collection of postal savings deposits, totalling €1,799 million. This service relates to the provision and redemption of Interest-bearing Postal Certificates and payments into and withdrawals from Postal Savings Books, carried out on behalf of Cassa Depositi e Prestiti under the Agreement of 14 December 2017, for the three-year period 2018-2020.
The decrease in “Collection and payment services” is primarily due to revenue from monetics relating to the issue of Postepay cards and related services, as they are included, with effect from 1 October 2018, in the business transferred to PostePay.
Revenue from contracts with customers relate mainly to: (i) revenue from management, brokerage and advisory services these are recognised over time and measured on the basis of the volumes placed, quantified on the basis of commercial agreements with financial institutions. With regard to the remuneration for postal savings deposits, the agreement entered into with Cassa Depositi e Prestiti provides for the payment of a variable fee when certain levels of funding are reached, the quantification of which is determined annually on the basis of volumes of deposits and early redemptions; certain commercial agreements, entered into with leading financial partners for the placement of loan products, provide for the relegation of placement fees in the event of early redemption or subrogation by customers; (ii) revenue for collection and payment services: recognised at point in time on the basis of the number of transactions accepted at the counter (e.g. commissions on postal current account slips) and valued on the basis of the contractual terms of sale and recognised over time based on the customer’s use of the service, mainly with reference to commissions on delegated services and debit cards; (iii) revenue for current account management and maintenance services: recognised over time, measured on the basis of the service rendered and valued on the basis of the contractual terms offered to customers.
Channel/Amounts (€m) FY 2019 FY 2018 3. third-party products and services 2,828 2,608
Section 4 – Profits/(losses) on trading – Item 80 4.1 Profits/(losses) on trading: breakdown
1. Financial assets held for trading - 4 - - 4 2. Financial liabilities held for trading - - - - 3. Financial assets and financial liabilities: exchange differences x x x x - - on debt securities and interest rates - - - - - - on equity instruments and share indices - - (15) - (15)
- on foreign exchange and gold x x x x of which: natural hedges connected with the fair value option x x x x -
A. Financial assets 1. Financial assets measured at amortised cost - (10) (10) 4 (3) 1 2. Financial assets measured at fair value through other comprehensive income 352 (3) 349 400 (22) 378
Stage 1 and 2 Stage 3 Stage 1 and 2 Stage 3
Write-off Other of which: purchased or originated credit impaired financial assets - - - - - -
Section 9 – Profits/(losses) from contract amendments without termination – Item 140 Not applicable
Expense/Amounts (€m) FY 2019 FY 2018 a) wages and salaries (24) (53)
d) social security costs - e ) provision for employee termination benefits - f ) provisions for post-employment benefits: - g ) payments to external supplementary pension funds: (1) (1)
The reduction in this item is mainly attributable to the BancoPosta staff reorganisation projects under which, from 1 October 2018, back office and anti-money laundering activities were centralised in the Chief Operating Office function for RFC and, on the same date, the staff of the monetics and payments services business unit was transferred to PostePay (Table 10.2 of this Section).
Expense/Amounts (€m) FY 2019 FY 2018 1) Cost of services provided by Poste Italiane SpA (4,476) (4,509)
Section 14 – Other operating income/(expense) – Item 200 14.1 Other operating expense: breakdown
Profit component/Amounts (€m) FY 2019 FY 2018 1. Burglaries and theft (4) (5)
Profit component/Amounts (€m) FY 2019 FY 2018 1. Other revenue from contracts with customers 2 2
The increase in the sub-item “Other operating income” refers to revenue recorded as a result of certain analyses carried out on the transitional accounts used as part of BancoPosta RFC operations, which resulted in non-existent liabilities.
Section 15 – Profits/(losses) on investments – Item 220 Nothing to report.
Section 19 – Income tax expense on continuing operations – Item 270 19.1 Income tax expense on continuing operations: breakdown
Profit component/Amounts (€m) FY 2019 FY 2018 2. Increase/(decrease) in current taxes of prior period taxation (+/-) (1) 3. Reduction in current taxes (+) - 3. bis Reduction in current taxes due to tax credit pursuant to Law 214/2011 (+) - 4. Increase/(decrease) in deferred tax assets (+/-) (58) 1 5. Increase/(decrease) in deferred tax liabilities (+/-) - 6. Tax expense for the year (-) (-1+/-2+3+3 bis+/-4+/-5) (234) (233)
Net provisions for risks and charges and impairments of receivables 3 0.4% 1 0.1%
Items (€m) FY 2019 FY 2018 10. Profit/(Loss) for the year 611 597 Other components of comprehensive income not reclassified to profit or loss 20. Equity instruments measured at fair value through other comprehensive income: - - a) movements in fair value - b ) transfers to other equity - 30.
Financial liabilities designated at fair value through profit or loss (changes in own credit rating): - a ) movements in fair value - b ) transfers to other equity - 40.
Hedges of equity instruments measured at fair value through other comprehensive income: - a ) movements in fair value (hedged instrument) - b ) movements in fair value (hedging instrument) - 50. Property, plant and equipment - 80. Non-current assets and disposal groups held for sale - 90. Share of valuation reserve attributable to equity-accounted investments - 100. Tax expense on other comprehensive income not reclassified to profit or loss - -
139. Amendment of art. 1, paragraph 1097 of Law 296 of 27 December 2006, introduced by art. 1, paragraph 285 of the 2015 Stability Law (Law 190 of 23 December 2014).
The funds raised by private customers on postal current accounts must be used in euro area government securities and, for a portion not exceeding 50% of the funds raised, in other securities backed by the Italian government guarantee139, whilst deposits by Public Administration entities are deposited with the MEF.
In 2019, BancoPosta RFC’s operations focused on investment of the significantly increased volume of current account deposits, the reinvestment of funds deriving from maturing government securities and in the active management of financial instruments.
The investment profile is based, among other things, on the constant monitoring of habits of current account holders and a use of a leading market operator’s statistical/econometric model of typical postal current account interest rates and maturities, based on a prudent projection of the future volume of deposits. The above-mentioned model is thus the general reference for the investments (the limits of which are determined by specific guidelines approved by the Board of Directors) in order to limit exposure to interest rate and liquidity risks.
Financial risk management Balanced financial management and monitoring of the main risk/return profiles are carried out and ensured by dedicated organisational structures, both within and without the BancoPosta ring-fence, that operate separately and independently. In addition, specific processes are in place governing the assumption and management of and control over financial risks, including through the progressive implementation of adequate IT tools. In this regard, on 19 February 2018, the Board of Directors of Poste Italiane SpA adopted a revised version of the Guidelines for Internal Control and Risk Management System (SCIGR), which contains integrated guidelines for Poste Italiane SpA’s Internal Control and Risk Management System. From an organisational viewpoint, the model consists of: � the Audit, Risk and Sustainability Committee established in 2015 to support – thanks an adequate research, recommendation and advisory activity - the assessments and decisions of the Board of Directors on the internal control system, risk management and, starting from February 2018, issues pertaining to Poste Italiane’s sustainability; � the Financial and Insurance Services Committee, established on 19 March 2018 to replace the previous Finance, Savings and Investment Committee, with the aim of overseeing the process of developing the products and services distributed by BancoPosta, in order to take a uniform, integrated view of the entire offering and to monitor the performance of the financial investments in which private customer deposits are invested; BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part E – Information on risks and related hedging policies
Credit risk is defined as the possibility that a change in the creditworthiness of a counterparty, to which the entity is exposed, could result in a matching change in the value of the amount due. It thus represents the risk that the debtor is partially or entirely unable to repay the principal and interest due.
Qualitative information 1. Generalities Presidential Decree 144/2001 prohibits BancoPosta RFC from making loans to members of the public. As a result, there are no credit policies.
140. On 18 October 2018 the Board of Directors of Poste Italiane SpA approved the updated version of the Guidelines on Poste Italiane SpA’s financial management, upon proposal of the CEO and with the consent of the Control, Risk and Sustainability Committee.
141. According to prudential regulations, with reference to the rules on Large Exposures, risk-weighted assets must remain below 25% of own funds. As a rule, exposures are recognised at nominal value, taking into consideration any credit risk mitigation techniques. To take into account the lower risk related to the nature of the borrower, more favourable weighting factors are applied.
In terms of prudential oversight, the following methods are used to estimate the exposure to counterparty risk inherent in each of the following types of transaction: � the Market Value method143, is used for interest rate swaps and forward purchases of government securities; � Credit Risk Mitigation (CRM) techniques, the Full Method , are used for repurchase transactions”144.
The Expected Credit Loss (ECL) method introduced by IFRS 9 applies to financial assets measured at amortised cost and to financial assets measured at fair value through other comprehensive income.
Expected credit losses are determined either over a 12-month horizon or a lifetime horizon, depending on the stage of the exposure, on the basis of the following metrics: � Probability of Default (PD); � Loss Given Default (LGD); � Exposure at Default (EAD); � Time Factor (TF).
Below, the main assumptions adopted in determining the single factors are illustrated: � PD: as indicated from the standard a Point in Time (PIT) or forward-looking PD has been adopted, depending on the stage of the exposure; � LGD: use has been made of the Internal Ratings-Based (IRB) approach under the Basel guidelines (45% for senior risk assets, 75% for subordinated risk assets); � EAD: exposure calculated prospectively until maturity of the instrument, starting from the development of projected cash flows. In the development account was taken of specific indexation assumptions for every asset class (fixed income securities, floating-rate securities, inflation-indexed securities, etc.); � TF: the effective interest rate of each exposure was used as discount factor.
The collective impairment of a homogenous group of financial assets defines the expected credit loss (ECL) of the instrument, even though it cannot be associated with a specific exposure. Grouping takes place in relation to the type of counterparty on the basis of the estimated PD.
143. The Market Value method to measure the risk inherent in derivatives entails summing two components: the current replacement cost, represented by fair value, if positive, and an add-on equal to the product of the nominal value and the probability that the fair value, if positive, increases the value or, if negative, turns positive.
This change in notches is compared with a threshold that takes into account the following factors: � the rating of the financial instrument at the time of investment; � the rating of the financial instrument at the reporting date; � the seniority of the position within the portfolio (vintage factor); � an additive factor to mitigate the non-linearity of the PD vis-à-vis the rating classes145; � a judgemental factor to be used only in the presence of sudden changes in the creditworthiness not yet reflected by the rating146.
Based on the above information, BancoPosta RFC does not apply the presumption that an exposure past due for over 30 days indicates automatically significant increases in credit risk after initial recognition.
BancoPosta RFC defines a default on the basis of ad hoc assessments that take into consideration: � any payment delays; � market information such as a default rating by the rating agencies; � internal analyses of specific credit exposures.
With respect to payment delays, the definition of default is based on the following approach: � late payments, even by one day, or debt renegotiation for financial instruments with sovereign counterparties; � payments 90 days past due, for financial instruments with banking and corporate counterparties.
145. The additive factor is built in view of the rating level at the reporting date, where the better the rating the higher the threshold for the transition to Stage 2. 146. The judgemental factor can summarise significant aspects in determining the significant increase of credit risk, considering such elements as: • an actual or expected significant change of the internal/external credit rating of the financial instrument; • actual or expected negative changes in economic, financial or business conditions that might cause a significant change in the borrower’s ability to honour its obligations, such as an actual or expected increase in interest rates or an actual or expected significant increase in the unemployment rate.
147. In particular, the use of such approach is limited to situations where, actually, the available data are deemed to be no longer representative of the counterparty’s risk.
BancoPosta RFC adopts credit and counterparty risk mitigation techniques. Specifically: � regarding hedging derivatives and repurchase agreements, credit and counterparty risks are mitigated by entering into a master netting agreement and requiring collateral in the form of cash or government bonds; � in relation to trade receivables credit terms are extended for customers, requesting, in certain cases, guarantees or sureties issued by prime banks or insurance companies.
At 31 December 2019, BancoPosta RFC does not hold financial assets secured by guarantees or other credit risk mitigating instruments for which no loss provisions have been made (except for the temporary use of liquidity in reverse repurchase agreements).
The main types of instrument used by BancoPosta RFC to mitigate credit and counterparty risk are described below: Fixed income instruments
The calculation of positions in derivatives and repurchase agreements and the related risk mitigation instruments are illustrated in Part B – Other Information, tables 5 and 6, to which reference is made.
Other performing exposures Total 1. Financial assets measured at amortised cost - - - 47 40,903 40,950 2.
Financial assets measured at fair value through other comprehensive income 3. Financial assets designated at fair value - - - - - 4. Other financial assets mandatorily measured at fair value - - - - - 5. Financial assets held for sale - - - - - -
Non-performing Performing Total (net exposure)Gross exposure Total impairments Net exposure Total partial write-offs*
Net exposure 1. Financial assets measured at amortised cost 2. Financial assets measured at fair value through other comprehensive income 3. Financial assets designated at fair value 4. Other financial assets mandatorily measured at fair value 5. Financial assets held for sale - - - - - - - - * Amount reported for disclosure purposes.
Over 90 days 1. Financial assets measured at amortised cost 2. Financial assets measured at fair value through other comprehensive income
Total impairments Total provisions for commitments to disburse funds and financial guarantees given
Assets in stage 1 Assets in stage 2 Assets in stage 3 of which: purchased or originated credit impaired financial assets
“Off-balance sheet exposures, Performing” relates to the counterparty risk associated with derivatives registering fair value gains, gross of any netting agreements148, securities provided as collateral under counterparty risk mitigation agreements and for Repo financing with Securities Financing Transactions (SFT)149 margins.
A. On-balance sheet exposures c) Non-performing past-due exposures 13 X 13 - -
148. BancoPosta RFC is not a party to enforceable master netting agreements or similar arrangements meeting the requirements of IAS 32, paragraph 42 for offsetting in the financial statements but used standard bilateral netting agreements that allow, in the event of the counterparty’s default, the offsetting of debit and credit positions in relation to derivative financial instruments.
“Off-balance sheet exposures, Performing” relates to the counterparty risk associated with derivatives registering fair value gains, gross of any existing netting agreements.
A.1.8 On-balance-sheet credit exposures to banks: trends in gross non-performing exposures
B2. Transfers from acquired or originated impaired financial assets - - -
B3. Transfers from other categories of non-performing exposure - - -
C6. Transfers to other categories of non-performing exposure - - -
C7. Contract amendments without termination - - - - of which: transferred and not derecognised - - -
A.1.9bis On-balance sheet credit exposures to customers: trends in gross forborne exposures granted by credit quality
A.1.10 On-balance-sheet non-performing credit exposures to banks: trends in overall impairment losses/reversals
B1. Value adjustments to acquired or originated impaired financial assets - X - X - X
B4. Transfers from other categories of non-performing exposure - - - - - -
A.2.1 Distribution of financial assets, commitments to disburse funds and financial guarantees given by external rating classes (gross amounts)
B. Financial assets measured at fair value through other comprehensive income - - 36,810 - - - - 36,810
Financial assets allocated to stage 1 in the “Unrated” category refer mainly to the exposure to the Central Counterparty, Cassa di Compensazione e Garanzia.
The rating agency equivalents of credit rating classes are shown below: Credit rating class Fitch Moody's S&P DBRS
B. Other financial assets mandatorily measured at fair value - - - - - - -
C. Financial assets designated at fair value - - - - - - -
D. Financial assets measured at fair value through other comprehensive income 7,329 - 7,329 - 7,228 - 7,228
E. Financial assets measured at amortised cost 5,179 - 5,179 - 4,966 - 4,966
Information on the market risks associated with this transaction is provided in the Banking Book section.
Cash flow interest rate risk arises from the mismatch – in terms of interest rate, interest rate resets and maturities – of financial assets and liabilities until their contractual maturity and/or expected maturity (banking book), with effects in terms of interest spreads and an impact on future results. This risk is of particular relevance to variable rate assets and liabilities or assets and liabilities which have been transformed into variable rate by fair value hedges.
150. Duration is the indicator used to estimate the percentage change in price in response to a shift in market returns. 151. Since 1 October 2018, prepaid cards are the responsibility of Postepay SpA. The liquidity raised through these cards is transferred to BancoPosta, which invests the funds raised in euro area government bonds or bonds guaranteed by the Italian State. As such, for the purposes of specific risk analyses, the rationales related to each model underlying the different types of deposit inflow continue to apply.
BancoPosta RFC monitors market risk, including fair value interest rate and spread risks, inherent in financial assets measured at fair value through other comprehensive income and derivative financial instruments through the computation of Value at Risk (VaR) over a time horizon of 1 day at a 99% confidence level.
BancoPosta RFC monitors the price risk to which its shareholdings are exposed by computing Value at Risk (VaR) over a time horizon of 1 day at a 99% confidence level.
BancoPosta’s financial assets measured at fair value through other comprehensive income at 31 December 2019 had a duration of 5.30 (31 December 2018: 4.80). The sensitivity analysis is shown in the table.
All of BancoPosta RFC’s investments are classified as either Financial assets measured at amortised cost or Financial assets measured at fair value through other comprehensive income. The sensitivity analysis shown above is for the last of these categories.
The value of the portfolio of Italian government securities or backed by the guarantee of the Italian State is much more sensitive to the credit risk associated with the Italian Republic than to changes in so-called risk-free interest rates. This is due to the fact that changes in credit spreads are not hedged and regard the entire securities portfolio, meaning both the fixed and variable rate components. In this latter case, in fact, fair value derivatives, used to convert variable rate instruments, hedge only the risk-free interest rate risk and not credit risk. This means that a change in the credit spread has an equal impact on both fixed and variable instruments.
The sensitivity to the spread152 has been calculated by applying a shift of +/- 100 bps to the risk factor that affects the different types of bonds held represented by the yield curve of Italian government bonds.
It is worthy of note that any change in the spread would not entail any accounting effect on financial assets measured at amortised cost but would affect solely unrealised gains/losses. In other words, fixed income instruments measured at amortised cost, which at 31 December 2019 amounted to €25,064 million (nominal value of €21,175 million) and have a fair value of €24,686 million, would be reduced in fair value by approximately €2.7 billion following an increase in the spread of 100 bps, with the change not reflected in the accounts.
Financial assets measured at fair value through other comprehensive income 2018 effects
In order to jointly monitor spread and fair value interest rate risks, the following table shows the results of the VaR analysis conducted with reference to financial assets measured at fair value through other comprehensive income and the relevant derivative financial instruments (except forward purchases), taking into account the variability of both risk factors: Average VaR (412) (417)
Cash - Account held at Bank of Italy 814 8 (8) 348 3 (3)
Cash flow interest rate risk at 31 December 2019 was primarily due to: � the placement of Public Administration deposits with the MEF; � fixed income bonds issued by the Italian State swapped in floating-rate bonds through fair value hedge derivatives for a total nominal amount of €6,125 million mainly including: (i) Italian government bonds for €4,385 million, whose fair value hedge will start to take effect in the 12 months following the period under review; (ii) inflation-linked bonds issued by the Italian Republic with a nominal amount of €100 million; � receivables for a total amount of €5,660 million for security deposits provided as collateral for derivative liabilities and repurchase agreements.
Financial liabilities held for trading (15) (12) 12 (12) 12 - 2018 effects
153. The exchange rate risk relating to VISA shares was mitigated through a forward sale transaction carried out during 2019.
Without netting agreements 1. Debt securities and interest rates - - - - - - - 2. Equity instruments and equity indexes - 51 - - - - - -
A.2 Financial derivatives on equity instruments and equity indexes - 51 - 51
To limit the effects of interest rates on fair value, BancoPosta RFC enters into interest rate swaps Over the Counter (OTC) to hedge the fair value of the bonds held in portfolio. The objective of these transactions is to have instruments that can offset changes in fair value of the portfolio due to interest rate fluctuations and the rate of inflation.
In addition, BancoPosta RFC has a portfolio of inflation-linked BTPs subject to cash flow variability in relation to inflation.
With respect to the hedges of forecast transactions, no source of ineffectiveness was identified, as the forward prices of the counterparties were assumed to be perfectly equal to the theoretical forward prices.
In particular, in fair value hedges, the credit risk of the Italian Republic is not hedged and is set for the duration of the swap. In addition, full hedges and partial hedges are implemented, with the start date equal to the date of purchase of the instrument (swap spot start) and after the purchase of the instrument (swap forward start), respectively.
Regarding fair value hedges, BancoPosta RFC evaluates the effectiveness of every hedging relationship in offsetting movements in fair value through a retrospective effectiveness test and a prospective effectiveness test154, using the approaches illustrated in the following notes.
The retrospective effectiveness test is run by utilising the “dollar offset approach through the hypothetical derivative155. With this approach, consideration is given to the hedge ratio of the change in fair value of the actual derivative to the change in fair value of the hypothetical derivative occurred between inception and the valuation date. The hedge is considered effective if the hedge ratio falls in the interval between 80% and 125%.
The hypothetical derivative and the actual hedging instrument have a settlement date consistent with the hedge inception (spot or forward start) and differ solely in their spread which is considered, as already indicated, the main source of ineffectiveness. The partial ineffectiveness of the hedge, equal to the difference between the changes in value of the two derivatives (hypothetical and actual) represents the net effect of the hedge recognised separately in profit or loss.
A hedge can be ineffective when the hedging instrument and the hedged item: are in different currencies; have different maturities; use different underlying interest rates; are exposed to different counterparty risks; and when the derivative is not equal to zero at inception.
For the purposes of the prospective effectiveness test, different approaches have been applied, depending on the characteristics of the hedging swap. Specifically: � the “Critical terms” approach for derivatives for which it has been determined at inception that the characteristics of the indexed leg of the swap make it possible to replicate exactly the variable cash flows generated by the hedged item; � the “Dollar offset through the hypothetical derivative” approach for derivative contracts with a fixed rate applicable to a nominal amount growing constantly at six-month intervals until the derivative expires. For these contracts the prospective effectiveness test is performed by calculating the hedge ratio between the change in fair value of the hypothetical derivative and the change in fair value of the actual derivative159. The hedge is considered effective if the hedge ratio falls in the interval between 80% and 125%.
159. Calculated by assuming a parallel shift of + / - 100 bps of the yield curves.
Over the counter Organised marketsCentral counterparties Without central counterparties Central counterparties Without central counterparties
Without netting agreements 1. Debt securities and interest rates - 28,864 - - - 28,335 - 2. Equity instruments and equity indexes - - - - - - - -
Contracts not falling within the scope of netting 1) Contracts not falling within the scope of netting agreements 2) Equity instruments and equity indexes 3) Currencies and gold 4) Commodities 5) Other
Underlyings/Residual term to maturity (€m) 1 year or less 1 - 5 years Over 5 years Total
A.1 Financial derivatives on debt securities and interest rates 1,504 465 26,895 28,864
A.2 Financial derivatives on equity instruments and equity indexes - - - -
Specific hedges - net positions: balance sheet value of assets or liabilities (before netting)
A. Assets 1. Financial assets measured at fair value through other comprehensive income - hedging: 1.1 Debt securities and interest rates 17,476 - 2,552 - 2,040 X
BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part E – Information on risks and related hedging policies
(€m) Change in value use to recognise ineffective portion of hedge Hedge reserve Termination of hedge: residual value of hedge reserve
B. Hedges of net investments in foreign operations X - -
Reclassifications to profit or loss (60) - - - - - - - - of which: future transactions no longer expected of which: transfers to initial carrying amount of hedged instruments 3.3 Other information on trading and hedging derivatives
At 31 December 2019 Banco Posta RFC had no master netting or similar agreements in place that meet the requirements of IAS 32, paragraph 42, regarding offsetting financial assets and liabilities.
In terms of BancoPosta RFC’s specific operations, liquidity risk regards the investment of current account and prepaid card160 deposits in bonds issued by euro area government securities and/or other securities backed by guarantee of the Italian Republic, and the margins on derivative transactions. The potential risk derives from a mismatch between the maturities of investments in securities and those of liabilities, represented by current accounts where the funds are available on demand, thus compromising the ability to meet its obligations to current account holders. This potential mismatch between assets and liabilities is monitored via comparison of loan and deposit maturities, using the statistical model of the performance of current account deposits, in accordance with the various likely maturity schedules and assuming the progressive total withdrawal of deposits over a period of 20 years for retail customers, 10 years for business customers and Postepay cards and 5 years for Public Administration customers. BancoPosta RFC closely monitors the behaviour of deposits taken in order to assure the model’s validity.
In addition to postal deposits, BancoPosta also funds itself through: � long-term repos, amounting to an outstanding €6.1 billion; � short-term deposits created through repurchase agreements as funding for incremental deposits used as collateral for interest rate swaps and Repos (collateral provided, respectively, under CSAs and GMRAs).
The time distribution of assets and liabilities is shown below, as established for banks’ financial statements (Bank of Italy Circular 262/2005 and subsequent updates), using accounting data reported for the residual contractual term to maturity.
The framework, which is based on an integrated (qualitative and quantitative) measurement model, makes it possible to monitor and manage risk on an increasingly informed basis.
Quantitative information At 31 December 2019, the risk map prepared in accordance with the aforementioned framework shows the type of operational risks BancoPosta RFC’s products are exposed to. In particular: Operational risk
163. A definition of the RAF is provided in the Introduction to Part E.
Total at 31/12/2018 b) required by articles of association - - - Equity instruments measured at fair value through other comprehensive income - - - Hedges of equity instruments measured at fair value through other comprehensive income - Financial assets (other than equity instruments) measured at fair value through other comprehensive income - Property, plant and equipment - - - Hedges of net investments in foreign operations - - - Hedging instruments (undesignated elements) - - - Non-current assets and disposal groups held for sale - - - Financial liabilities designated at fair value through profit or loss (changes in own credit rating)
- Valuation reserves relating to equity accounted investments - 7. Profit/(Loss) for the year 611 597
“Reserves, other” consists of the initial reserve of €1 billion provided to BancoPosta RFC on its creation, through the attribution of Poste Italiane SpA’s retained earnings and the €210 million equity injection, resolved by the Extraordinary General Meeting of 29 May 2018, through the allocation of Poste Italiane SpA’s available reserves.
3 Reclassification to profit or loss of negative reserve for realised losses 17 x 2. 4 Transfers to other equity (equity instruments) - - 3. 2 Recoveries due to credit risk (4) - 3. 3 Reclassification to profit or loss of positive reserve for realised gains (191) x 3. 4 Transfers to other equity (equity instruments) - - -
Section 2 – Own funds and capital ratios BancoPosta RFC’s own funds are all Common Equity Tier 1 (CET 1) and consist of: � other reserves, being revenue reserves, amounting to €1 billion originating from the creation of the ring-fence, and any further amounts attributed by Poste Italiane SpA that meet the requirements for inclusion in own funds164; � undistributed earnings, being BancoPosta RFC’s profits appropriated on approval of Poste Italiane SpA’s financial statements.
At 31 December 2019, CET 1 amounted to €2,388 million, €85 million of which was calculated from the profit for 2019 (in compliance with the provisions of art. 26 of Regulation (EU) no. 575/2013) and €36 million deriving for €28 million from the application of the transitional provisions to mitigate the effects of IFRS 9 and for the remainder from the application to BancoPosta RFC of prudential supervisory institutions.
Based on prudential standards, BancoPosta is required to comply with the following minimum capital ratios: � Total capital ratio (the ratio of total own funds to total risk weighted assets - RWA165), equal to 10.5% (8% being the minimum requirement and 2.5% being the capital conservation buffer); � Common Equity Tier 1 ratio (the ratio of CET1 to total risk weighted assets - RWAs): equal to 7.0% (4.5% being the minimum requirement and 2.5% being the capital conservation buffer); � Tier 1 ratio (the ratio of Tier 1 to total risk weighted assets - RWAs): equal to 8.5% (6.0% being the minimum requirement and 2.5% being the capital conservation buffer).
At 31 December 2019, BancoPosta RFC complies with the prudential requirements, with a CET1 ratio of 18.3%.
For more details, reference is made, as provided for by Circular no 262 of the Bank of Italy, to the information on own funds and capital adequacy contained in the public disclosure (Pillar 3).
165. Risk weighted assets, or RWAs, are calculated by applying a risk weighting to the assets exposed to credit, counterparty, market and operational risks.
Part H – Related party transactions 1. Payments to key management personnel Key management personnel consist of Directors of Poste Italiane SpA and first-line managers, whose compensation before social security and welfare charges and contributions are disclosed in table 4.4.5 in the notes on Poste Italiane SpA’s financial statements and have been charged to BancoPosta RFC as part of the services provided by Poste Italiane functions outside the ring-fence (see Part C, Table 9.5). The charges are calculated in accordance with specific operating guidelines (Part A, paragraph A.1, Section 4).
Provision for doubtful debts owing from external related parties (1) (5) - - - - -
BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part H – Related party transactions
Consorzio Servizi Telef. Mobile ScpA - - - - - - - -
The Annual General Meeting of Poste Italiane SpA’s shareholders held on 24 May 2016 approved the information circular for the Long-term Incentive Plan for 2016-2018 (LTIP) – Phantom Stock Plan, prepared in accordance with art. 84-bis of the Regulations for Issuers. The LTIP, set up in line with market practices, aims to link a portion of the variable component of remuneration to the achievement of earnings targets and the creation of sustainable shareholder value over the long term.
The Performance Targets, to which receipt of the cash bonus is subject, are as follows: � an indicator of earnings over e three-year period, based on the RORAC (Return On Risk Adjusted Capital), used for the LTIP with the aim of taking into account the continuity and sustainability of the long-term performance after appropriately adjusting for risk; � an indicator of shareholder value creation, based on the Total Shareholder Return, used to measure performance based on the value created for Poste Italiane’s shareholders compared with other FTSE MIB-listed companies.
BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part I – Share-based payment arrangements
The total number of phantom stocks awarded to the 4 Beneficiaries of the First Cycle of the Plan outstanding at 31 December 2019 amounted to 39,294.
The total number of phantom stocks awarded to the 6 Beneficiaries of the Second Cycle of the Plan amounted to 47,595 units.
The Annual General Meeting of Poste Italiane SpA’s shareholders held on 28 May 2019 approved the information circular for the Equity-based incentive plan (ILT) – Performance Share Plan, prepared in accordance with art 84-bis of the Regulations for Issuers. This incentive scheme, set up in line with market practices, aims to link a portion of the variable component of remuneration to the achievement of earnings targets and the creation of sustainable shareholder value over the long term.
The ILT Performance Share Plan, as described in the relevant Information Circular, provides for the assignment of Rights to the ordinary shares of Poste Italiane. The number of Rights to be granted to Beneficiaries is subject to the achievement of Performance Targets over a three-year period, following confirmation of achievement of the Hurdle, the Qualifying Conditions and compliance with the Malus Provisions. The Plan covers a medium- to long-term period. In particular, the Plan includes two award cycles, corresponding to the financial years 2019 and 2020, each with a duration of three years. Shares are awarded if performance targets are met or after a Retention Period. The key characteristics of the Plan are described below.
The Performance Targets, common to all Beneficiaries, to which the vesting of the Rights and, therefore, the allocation of the Shares is conditioned, for the first award cycle are highlighted below: � a profitability indicator identified in the Group’s three-year cumulative EBIT used to recognise the continuity and sustainability of profitability results over the long term; � an indicator of shareholder value creation, based on the relative Total Shareholder Return, used to measure performance based on the value created for Poste Italiane’s shareholders compared with the FTSE MIB index166.
An independent expert, external to the Group, was appointed to measure the value of the stocks and this was done using Monte Carlo simulations.
On 27 May 2014, the Bank of Italy issued specific Supervisory Standards for BancoPosta (Part IV, Chapter I, BancoPosta including in Circular 285 of 17 December 2013 Prudential supervisory standards for banks) which, in taking into account BancoPosta’s specific organisational and operational aspects, has extended application of the prudential standards for banks to include BancoPosta RFC. This includes the standards relating to remuneration and incentive policies (Part I, Title IV, Chapter 2 Remuneration and incentive policies and practices in the above Circular 285). These standards provide that a part of the bonuses paid to BancoPosta RFC’s Risk Takers may be awarded in the form of financial instruments over a multi-year timeframe.
The allocation of Phantom Stocks (MBO 207 and 2018) and Rights to receive Shares (MBO 2019) is subject to the existence of a Performance Hurdle (Group Profitability EBIT) and Qualifying Conditions as follows: � Capital adequacy, (CET 1); � Short-term liquidity, (LCR).
Payment of the deferred portion will take place each year, provided that BancoPosta RFC’s minimum regulatory capital and liquidity requirements have been met. The effects on profit or loss and on equity are recognised in the period in which the instruments vest.
An independent expert, external to the Group, was appointed to measure the value of the stocks, based on best market practices.
At 31 December 2019, the number of Phantom Stocks relating to the 2017 and 2018 MBO plans in place was 92,639. The liability recognised at 31 December 2019 amounts to €0.8 million.
During the reporting period, BancoPosta RFC did not carry out any transactions in accordance with IFRS 16 relating to Leases.
BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part L – Operating segments
2. In this regard, please note that: - the adequacy of the administrative and accounting procedures for the formation of the Consolidated Financial Statements of the Poste Italiane Group was verified by evaluating the internal control system on financial reporting. This evaluation was performed by taking as a reference the criteria laid out in the Internal Control – Integrated Framework model issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO); - no significant aspects emerged from the evaluation of the internal control system on financial reporting.
Attestation of the Financial Statements at 31 December 2019 pursuant to art. 154bis, paragraph 5, of Legislative Decree 58/1998 and art. 81-ter of CONSOB Regulation no. 11971 of 14 May 1999 1. The undersigned Matteo Del Fante, as Chief Executive Officer, and Alessandro Del Gobbo, as Manager Responsible for Financial Reporting of Poste Italiane S.p.A., also taking into account the provisions of art. 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of 24 February 1998, attest to: - the adequacy, in relation to the characteristics of the company, and - the effective application of the administrative and accounting procedures for the formation of the Financial
During the year ended 31 December 2019, the Board of Statutory Auditors of Poste Italiane
The undersigned members of the Company’s Board of Statutory Auditors, elected by the
The Board of Statutory Auditors obtained the information necessary in order to carry out its appointed duties by attending the Board of Directors’ and Board Committee meetings, by taking part in the induction sessions organised by the Company, by holding meetings with the
Company’s principal functions and - above all with internal auditing staff and the Supervisory
PricewaterhouseCoopers S.p.A., who are responsible for auditing the separate and consolidated financial statements.
On 30 January 2020, the Supervisory Body approved the new “Regulations governing the functioning of the Board of Statutory Auditors of Poste Italiane S.p.A.”, which regulates the procedures for functioning of the Board of Statutory Auditors in compliance with the law, the
Code of Conduct for the Board of Statutory Auditors of Listed Companies, recommended by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (national association of chartered accountants).
On the above basis, the following information is provided in accordance with the provisions of CONSOB announcement DEM 1025564/2001, following the numerical order established thereby, as amended by announcement DEM/3021582 of 4 April 2003 and then by announcement DEM/6031329 of 7 April 2006.
Full disclosure regarding these transactions is provided in the Directors’ Report on
The meetings were conducted in accordance with the By-laws, the related legislation and regulations governing their conduct and, within the scope of our responsibilities, the Board can provide reasonable assurance that the actions approved comply with the law, the By-laws and correct corporate governance principles and were not manifestly imprudent, risky or in conflict with resolutions approved by the General Meeting, or such as to compromise the value of the Company; from the information provided during the Board of Directors’
meetings, there is no evidence that the Directors have carried out transactions giving rise to a potential conflict of interest with the Company.
In this regard, the Board declares that: ü based on the assessments conducted, we are not aware of exceptional or unusual transactions with Group companies, third parties or other related parties; ü the procedures applied by the Company in conducting related party transactions comply with the principles contained in CONSOB Regulation 17221 of 12 March 2010, as amended by CONSOB Resolution 19974 of 27 April 2017 and by the provisions of Bank of Italy Circular 263/2006 (Title V, Chapter 5), with reference to transactions between BancoPosta and Poste Italiane’s related parties; ü infra-group or related party transactions did not give rise to critical issues; ü with regard to transactions conducted by relevant persons and by persons closely associated with them (provisions relating to “Internal Dealing”), the Board verified that the Company has adopted specific internal regulations and procedures for such disclosures following the revised interpretation provided by ESMA and the changes introduced by CONSOB Resolution 19925 of 22 March 2017.
The Board oversaw effective implementation of the rules governing related party transactions, by attending meetings of the Related and Connected Parties Committee (“Committee”). The
Directors have provided adequate disclosure on intra-group and related party transactions in the Report on Operations and the notes to the separate and consolidated financial statements.
Therefore, at the Committee meetings held on 26 June, 29 July and 25 September 2019, the
Guidelines, issued an opinion in favour of their approval by the Company’s Board of
Title V, Chapter 5 “Risky transactions and conflicts of interest involving connected parties”, section III, para. 2.2, the Board of Statutory Auditors deems that the procedure, as revised, is on the whole fit for the purpose of meeting the objectives for managing conflicts of interest with related parties.
regulation on related party transactions provided for by the new third paragraph of Article 2391-bis of the Italian Civil Code: on that occasion, the Board of Statutory Auditors also recommends that the list of examples of macro-transactions with related parties be extended to make it easier to identify them and consequently update the first-level controls relating to the identification and classification of all related party transactions.
Considering the very high number of related parties, the Board welcomes the fact that: - computerisation of the system for managing related party transactions, using a secure IT
platform, was completed in 2019. The system consists of a register of Poste Italiane
S.p.A.’s related and connected parties, in the “Central Database” and “Database of
is integrated with other company databases in order to achieve more stringent monitoring of transactions with related parties; Reports and Attestations
- to facilitate updates of the “Central Database”, senior managers are required to promptly communicate any changes in circumstances that might require modification of the
Central Database; - senior managers are, in any event, invited to access the “Central Database” each year to check that their data is complete and correct.
The Board of Statutory Auditors has verified the existence of adequate regulations and processes relating to the financial reporting process, examining the process that enables the
The report by the Manager responsible for financial reporting shows that over the years, while the scope of companies and processes has expanded, there has been an overall containment of the exceptions noted in both the functional and IT areas, indicating achievement of the maturity level of model 262.
with regard to design and 97% with regard to operation (2% was n.a.). Independent monitoring carried out by Internal Control, which allowed 100% coverage of the planned
In terms of planning the 2020 activities of the Manager responsible for financial reporting, in addition to continuous monitoring of progress of the action plans following the exceptions identified by the assessment activities, the 262 procedures will be updated according to the results of the 262 independent audits, the self-assessment and the organisational changes that have taken place. Lastly, Model 262 will be revised based on the structure of the new SAP
Independent Auditor and acquired the necessary information during the course of its work, with information on the audit approach used for the various significant reporting areas, sharing issues relating to corporate risks, as well as receiving updates on the progress of the audit assignment and on the main aspects for the attention of the Independent Auditor.
The Independent Auditor, with which we also periodically met in compliance with the provisions of art. 150, paragraph 3, of Legislative Decree 58/1998 (Consolidated Law on
Auditors of any actions or events deemed to be censurable or of an irregular nature requiring
The Independent Auditor issued its reports on the separate and consolidated financial statements for the year ended 31 December 2019, prepared pursuant to art. 14 of Legislative
Decree 39/2010 and art. 10 of Regulation (EU) 537/2014, on 25 March 2020. Details of the opinions and statements are provided in the reports issued by the Independent Auditor.
The Independent Auditor’s reports, issued in compliance with art. 10 of Regulation (EU)
537/2014, include information on key matters covered by the audit and the related audit procedures applied. As referred to in the reports on the separate and consolidated financial statements, these key matters (the Recoverable amount of the “Mail, Parcels and Distribution”
segment, Measurement of the technical provisions for the insurance business, and Valuation of unlisted financial instruments measured at fair value), and the opinions on the separate and consolidated financial statements are in line with the contents of the supplementary report for the Board of Statutory Auditors in its role as committee responsible for internal and statutory auditing, prepared pursuant to article 11 of the above Regulation.
In addition to the issues mentioned above, the Board of Statutory Auditors requested further information from the Administration, Finance and Control Department, the Manager responsible for financial reporting and the Independent Auditor with regard to revaluation of the investment in FSIA. In this regard, at the request of the Board of Statutory Auditors, the
CONSOB Regulation 20267. Based on the work performed, the Independent Auditor stated that nothing has come to its attention that would cause it to believe that the Poste Italiane
5. and 6. Information on any complaints presented pursuant to art. 2408 of the Italian Civil
During 2019, the Board received two complaints pursuant to art. 2408 of the Italian Civil
i. Complaint of 2 January 2019, lodged by shareholder Tommaso Marino, concerning the alleged financing of three Casaleggio Associati reports by the Poste Group, news also reported in the “Huffington Post.it” article of 13 November 2018, to which Mr Marino refers in the complaint. In particular, Mr. Marino asked the Board of Statutory Auditors previously in office to assess the correctness of Poste’s actions, not only with respect to the general corporate rules but also and above all with respect to the Poste’s Code of
Ethics. In the course of the preliminary investigation, the Board of Statutory Auditors previously in office requested and examined a detailed note prepared by the Company on the events reported, the Poste Group’s Code of Ethics, the Company’s procedure governing the sponsorship process, as well as the 2018 pre-closure figure for
Performance of Services” and the minutes of the Sponsorship and Donations Committee, confirms compliance of the company’s operations with the general corporate rules and with Poste’s Code of Ethics. On the basis of the above and of the examination carried out, the Board of Statutory Auditors considers that there are no censurable elements in the Company’s operations.
ii. Complaint of 24 January 2019, lodged by shareholder Marco Pedretti, concerning a disservice in the delivery of a legal document from Agenzia delle Entrate (Inland
in order to determine whether or not, in the context of the case referred to in art. 2408 of the Italian Civil Code, the complaint in question falls under such category, ascertaining that it does not but consists of a disservice in the interest of the complainant. In this regard, it should be noted that, pursuant to the code of conduct for the Board of Statutory
In addition, during the year and up to the current date, the Board of Statutory Auditors has received two complaints from third parties, as a result of which it launched its own investigation, asking the Company to carry out the necessary inquiries with the relevant departments in order to obtain clarification on the matters indicated in the complaints.
The reported facts were handled and resolved by the relevant corporate functions and, as a result of the checks carried out, no irregularities to be reported to the Annual General Meeting were identified.
“Disclosure of fees paid to the Independent Auditor in accordance with art. 149-duodecies of the CONSOB Regulations for Issuers”, which includes a table showing the fees payable to the
Conduct of an audit, at the request of Cassa Depositi e Prestiti, regarding the distribution and management of postal savings products in 2018 (a descriptive report on the accounting system and controls connected with Postal Savings – BancoPosta RFC’s operations and a report prepared by the Independent Auditor of Poste Italiane’s financial statements on specific audits of the procedures that make up the above system within the scope of the services provided by Poste Italiane to CDP).
€55,000 (plus out-of-pocket and administrative expenses capped at 5% of the fees and VAT)
Independent Auditor (the financial statements for the year ended 31 December 2019), in 2019, the Company, under the Board of Statutory Auditors’ responsibility and supervision, completed the process of selecting a new sole auditor for the Group for the nine-year period 2020-2028, process which began in 2018. The above selection process was completed in early 2019 and, on 15 March 2019, the Board of Statutory Auditors previously in office formally set out our recommendation to be presented to the General Meeting of shareholders for the
Meeting to vote on the engagement of the Poste Italiane Group’s Independent Auditor for the financial years 2020-2028. We have identified two potential companies and have expressed a preference for one of them which, based on a comparative, overall analysis of the proposals put forward, is the most suitable to carry out the engagement in line with the Company’s requirements.
The General Meeting of 28 May 2019 thereby resolved to appoint Deloitte & Touche S.p.A.
to audit the Poste Italiane Group’s accounts for the nine-year period 2020-2028, also determining the relative fees.
Consorzio Poste Motori: Professional assistance from PwC Advisory’s Forensic Team in conducting a critical assessment of transactions with consortium members.
Auditor’s opinion on interim dividends pursuant to art. 2433-bis of the Italian Civil Code €130,000 (plus VAT and expenses capped at 5% of the fees)
Pursuant to art. 154-bis of Legislative Decree 58/1998, in 2019, the Board of Statutory
Auditors issued an opinion on the appointment of the new Manager responsible for financial reporting.
Guidelines are fit for the purpose of meeting the objectives set out in the regulations for managing conflicts of interest with related and connected parties.
In addition, the Board has issued a reasoned opinion for the next General Meeting of shareholders on the payment of supplementary fees to the Independent Auditor to cover the cost of the additional activities involved in preparing for first-time adoption of IFRS 16.
During the year, the Board of Statutory Auditors took part in a total of 68 meetings. The
Board met on 35 occasions as the Board of Statutory Auditors (including 11 held jointly with the Control, Risk and Sustainability Committee), with the meetings having an average duration of approximately 3 hours and 20 minutes. We attended all Board of Directors’
Committee (all held jointly with the Board of Statutory Auditors), 6 meetings of the
Nominations and Corporate Governance Committee, 8 meetings of the Related and
Connected Parties Committee, 7 meetings of the Remuneration Committee, attended by at least one Statutory Auditor, and 1 Ordinary General Meeting.
Lastly, the Magistrate appointed by the Italian Court of Auditors to oversee Poste Italiane’s financial management has always been invited to attend meetings of the Board of Statutory
The Board of Statutory Auditors oversaw, within the scope of our responsibilities, the adequacy of the Company’s organisational structure and, more generally, that of the Poste
which is subject to continuous change, the Board of Statutory Auditors did not identify any elements that would result in the organisational structure being considered inadequate.
With regard to the internal control and risk management system, the Board has noted the information on the system provided in the “Annual Report on Corporate governance and the
The Board of Statutory Auditors met periodically and systematically with the head of Poste
Italiane’s Internal Control Function and, among other things, discussed the results of the activities carried out in 2019, during a specific meeting; it also acknowledged, during March 2020, a summary of the “Group Report on Assessment of the adequacy of the 2019 Internal
Control and Risk Management System (“SCIGR”), drawn up by Poste Italiane’s Internal
The Board of Statutory Auditors, following the meetings held with the Supervisory Bodies of some Group Companies and on the basis of the results that emerged, highlighted the physiological downsizing of the risk areas present in the Subsidiaries as a result of several revisions to the Group’s structure. In particular, following the centralisation of purchases at the Parent Company, it examined with the Internal Control Function the planning of audit activities on Subsidiaries in order to include, in the 2020 Audit Plan, the implementation of audits, including transversal ones, that could interest/include Group Companies.
Subsidiaries have implemented the Guidelines disclosed by the Parent Company, conducted by Internal Control, was fully positive.
The Corporate Affairs function (also “CA”) has always played an important role in directing, controlling and coordinating the corporate structure. Based on a logic of coordination and integration of competencies, it guarantees unitary governance of the legal, corporate and
Corporate Governance issues of the Poste Italiane Group and ensures efficiency, economies of scale, quality and effective support to the different business functions; in addition, in order to ensure uniform and integrated governance, a new Corporate Affairs function was set up in 2019, called “Group Corporate Compliance”, which encompasses the Corporate Affairs activities of the companies PostePay, SDA, Postel and BancoPosta Fondi SGR.
Policy issued in March 2019, for the dissemination of a culture of confidentiality and the adoption of measures necessary for the implementation and maintenance of a privacy management system that complies with the Regulation; this Policy is the framework for the 2018 Privacy Guidelines and the relative adoption of Poste Italiane’s new Privacy Model; - issuance of the Policy for the Protection of classified company information, which defines a security policy for the management of information and directs Poste Italiane and Group
Companies to adopt measures to protect the information handled regardless of its origin, the IT medium in which it is saved or the processing phase, in accordance with regulations and with the best practices of the sector; - introduction of new and innovative digital payment solutions that comply with the security requirements of the European Payment Services Directive (PSD2), which is the basis of the
Purchasing Units and the Project for centralisation of territorial purchases; in addition, the establishment of the Green Procurement structure within the Purchasing function, aimed at integrating sustainability aspects into the strategy and organisation of the Company; Annual Report 2019 Poste Italiane Group
Company with the aim of guaranteeing continuous improvement in the quality of services provided to customers, as well as effectiveness and efficiency of the processes managed, in compliance with sector regulations; - activation, in the Corporate Affairs area, of the Health & Caring Project, with the aim of defining a programme of training events, health services and clinical-diagnostic services to strengthen the awareness and culture of prevention for the health of employees; - the establishment, in the Human Resources and Organisation area, of the People Care and
Diversity Management function, committed to safeguarding the well-being of people working in the Company with an approach focused on the protection and integration of diversity.
In addition, the Board of Directors has implemented various organisational initiatives designed to strengthen the internal control system, as follows: - on 26 September 2019, it approved the revision to the Guidelines for the Management of
Legislative Decree 231/2001 of Poste Italiane S.p.A.; this revision takes account of the policies for centralising certain operating activities, launched by the Company in order to achieve organisational efficiency, cost rationalisation and process optimisation; - also on 5 November 2019, it approved the update of the Guidelines on the
Legislative Decree 231/2001); - again on 5 November 2019, it approved the Group’s new Money Laundering Prevention
Guidelines; - on 11 December 2019, it approved the Sustainability Strategy: materiality analysis; - on 30 January 2020, it approved the amendment to the Financial Management Guidelines for Poste Italiane.
Poste Group. The function is responsible for the overall and integrated management of purchasing processes, guaranteeing quality, efficiency and procedural accuracy. During 2019, the project to centralise the purchases of the main investee companies was implemented,
eliminating the 9 territorial breakdown of purchases. The Board of Statutory Auditors has also taken note of the issue/updating of the following procurement procedures: (i) General procedure for the purchase of works, services and supplies (August 2019); (ii)
Instructions for the Requirements Plan for Group Companies (October 2019); (v) Operating
Instructions for the Energy Procurement Plan for the Poste Italiane Group (February 2020).
The main changes with respect to the previous version regard: - the obligation for the Management Body to define a Guideline approved by the Board of
Directors (December 2019) and containing the choices it intends to make on relevant profiles in terms of organisational structure, procedures and internal controls, adequate verification and storage of data; - more detail on the decisions and procedures adopted with respect to adequate customer assessment, according to a risk-based approach (at least with regard to specific simplified and enhanced assessment measures); - measures to be taken in relation to customers operating with other countries at high risk of money laundering or terrorist financing, including specific periodic reporting requirements for transactions carried out.
Group’s Anti-Money Laundering function clarified the controls that support the qualitative and quantitative adequacy of both the Group Anti-Money Laundering function and the new organisational set-up of the anti-money laundering structures, at the central and territorial level, as well as that the “2019 Group Anti-Money Laundering Function Activity Plan” was carried out essentially in line with the planned activities and timing.
The results of the consolidated assessment conducted for 2019 by the Group’s Anti-Money
Laundering function, which the Board of Statutory Auditors acknowledged in March 2020, indicate that the level of “residual risk” to which the Group is exposed is classified as “low”.
With regard to risk management, the Board of Statutory Auditors acknowledges that in 2019 the CA/Group Risk Management function activated a Strategic Risk Assessment with the objective of identifying and assessing risks that, from an integrated standpoint, could undermine the full achievement of the corporate objectives defined in the “Deliver 2022” business plan. The process is supported by the RSA Archer platform, which allows each actor to view information in line with their profile and supports the preparation of integrated reporting. The risks, indicators and management measures formalised in the 2019 Corporate Risk Profile have been identified and shared with the risk owners and with the relevant specialist second-level control functions. The assessment confirmed that the quality delivered, customer satisfaction and IT security are the areas in which a high level of control must be maintained in order to contain risks within the tolerance and acceptability levels defined in 2019 Risk Appetite Framework (RAF). The risks associated with these areas are particularly significant and require constant monitoring, taking into account their potential reputational impact, also from an ESG perspective. In 2019, work continued on the transversal analysis of all risks affecting the company’s operations, with an integrated approach based on processes, in order to exploit possible synergies and convergences, as well as to consolidate the overall view of Poste Italiane’s integrated risk profile, thus going beyond the “silos” approach for each risk area.
In terms of risk management, the Board of Statutory Auditors notes that the risk management model is being modified, with the aim of centralising the assessment and monitoring of all Group risks. In this regard, we wish to reiterate our earlier recommendation that the Board of Directors should periodically monitor above all financial risk on a forward-looking, multiyear basis, periodically revising the assessment of such risks and examining investment and hedging policies via regular investigation by the Control, Risk and Sustainability Committee. In this connection, in view of the composition of the Group’s securities portfolio, which has a
The Board of Statutory Auditors met periodically with the Supervisory Board (“SB”) to ascertain the activities carried out by the latter during the 2019 financial year. During the meetings, it emerged that the Group’s oversight with respect to 231 has been strengthened, also through functional coordination by the relevant departments, with a view to standardising the general approach under 231. The checks carried out by Poste’s Supervisory Board show that the Subsidiaries have adopted their own Organisational Model pursuant to Legislative
Parent Company has a substantial body of legislation that seems to be adequate, also considering the size of the Company. In 2019, the Company carried out a risk assessment and gap analysis activity, which identified a number of areas for further strengthening of the 231 control system, and action plans were then shared with company management, essentially related to the updating of company procedures, which are being progressively implemented.
“trafficking of illicit influences”) and organisational changes within the company; - enhancement of the characteristics of Poste Italiane’s internal control and risk management system; - harmonisation of sensitive activities in order to make them homogeneous among the various Special Sections of the Model, also introducing a process approach; - review/integration of the specific control principles and behavioural rules set out in the
- express reference has been made to the fact that the specific control principles - as reported in each individual Special Section - are set out in the dedicated organisational controls and internal regulatory instruments, prepared in accordance with the Company’s Regulatory
For the revision of the Model, the contributions of all company functions were collected and a comparison was made with a leading external criminal law firm, in order to ensure the utmost compliance of choices made with the spirit of the rules and developments of law.
In summary, in light of the overall activities carried out by the Board of Statutory Auditors, considering: ü the organisational structure of the Poste Group in general and of BancoPosta RFC
specifically; ü the existing set of procedures and their continuous updating; ü the results of the verification and evaluation activities received by the Board of
Statutory Auditors from Bancoposta’s internal control as well as statutory audit function; ü the results of the inspection activities carried out by the various Supervisory
Audit functions and the Audit functions of Group companies; ü further events with potential impacts on the SCIGR, including corporate project initiatives in specific operational areas, implemented or in the process of progressive implementation; ü the evidence acquired from management of the Whistleblowing reporting system; the Board of Statutory Auditors is not aware of critical situations or events that might suggest shortcomings in the internal control system of Poste Italiane overall and of BancoPosta RFC
The Board of Statutory Auditors examined and oversaw, within the scope of our responsibilities, the adequacy of the Company’s administrative/accounting system in reliably representing operating activities, the effectiveness of the internal control and risk management system and the financial reporting process, by: (i) gathering information from the heads of the various functions, from the Independent Auditor and from the Manager responsible for financial reporting; (ii) examining the annual report of the Manager responsible for the internal control system; (iii) taking part in the work of the Control, Risk and Sustainability
Committee and the Related and Connected Parties Committee; (iv) examining the results of activities carried out by Poste Italiane S.p.A.’s Internal Control function and by BancoPosta’s
“Principal relations with the authorities”, in the notes to the financial statements.
The Board also notes the Attestations, dated 5 March 2020, of the separate and the consolidated financial statements for the year ended 31 December 2019 pursuant to art.154bis, paragraph 5 of Legislative Decree 58/1998 and art. 81-ter of CONSOB Regulation 11971 of 14 May 1999, in which the Chief Executive Officer and the Manager responsible for financial reporting declare, among other things, that the separate and consolidated financial statements: Annual Report 2019 Poste Italiane Group
ü have been prepared in compliance with the International Financial Reporting Standards endorsed by the European Union through EC Regulation 1606/2002, issued by the
Publication of Confidential Information, and Creation and Maintenance of a register of persons with access to Confidential Information”, approved by the Board of Directors on 22
These Guidelines and the “Internal Dealing Guidelines”, also approved by the Board of
The Independent Auditor, which periodically met with the undersigned Board of Statutory
On 25 March 2020, the Independent Auditor issued the Additional Report required by art. 11 of the Regulation (EU) 537/2014, of which the annual Confirmation of Independence and the
The Independent Auditor has not informed us of any events or circumstances identified during the performance of the audit that might raise significant doubts about the ability of the
Company or the Group to continue to operate as a going concern, nor regarding material shortcomings in its internal control system over financial reporting and/or in its accounting system, or any significant doubts over instances of non-compliance, whether effective or presumed, with laws, regulations or statutory requirements identified during the performance of the audit.
Company’s “Mail, Parcels and Distribution” business segment, (ii) valuation of the provisions for insurance business; (iii) valuation of financial instruments not valued at fair value.
The Auditor does not express a separate opinion on these key issues, for which the Auditor’s
The Board of Statutory Auditors also discussed these key issues with the Company’s management in specific meetings.
The Board has recommended that the Board of Directors periodically monitor these aspects of the accounts, potentially on a six-monthly basis.
Independent Auditor and the FTA function, examined in detail some additional aspects of relevance to the financial statements as at 31 December 2019, such as the valuation of the investment in FSIA, the write-off of receivables from current accounts closed with a debit balance and the recognition of income from postal current accounts for non-existent liabilities prescribed.
17. Oversight of application of the Corporate Governance Code for listed companies
Board Committee meetings, to the extent possible, should be scheduled so as to leave a longer period of time between them and Board of Directors’ meetings and, despite the positive progress made, we reiterate our view that information should be provided further in advance of meetings to the participating members, above all when there is a particularly large volume of material to be examined.
ü The Board of Statutory Auditors also recommends that, in view of the next meeting, all items on the agenda to be resolved by the meeting be examined by the Board of
Meeting with regard to the total compensation to be awarded both to the members of the new Board of Directors and to the members of the Board Committees.
concerning the threshold of significance of commercial, financial or professional relationships that may compromise the independence status, in order to verify any updates and additions that may be necessary and/or appropriate after approximately one and a half years from their adoption, a proposal also shared by the Chairman of the
Directors in accordance with the instructions contained in Borsa Italiana SpA’s Market
Borsa Italiana S.p.A.’s Market Regulations and in the Consolidated Law on Finance.
With regard to section II, the Board of Statutory Auditors, as per our previous reports, wishes to state that it is advisable to disclose Directors’ pay on an individual basis, showing the amounts received for different reasons regardless of their nature or origin.
Company on any economic or financial transactions and/or relationships between Poste
Italiane Group companies, Directors and their related parties, in accordance with the provisions relating to independence requirements set out in art. 3.C.1, letter c) of the
Corporate Governance and the Ownership Structure”. With regard to assessment of the independence of the Board’s members, the Board of Statutory Auditors verified that all its members meet the related requirements provided for in both the Consolidated Law on
Finance and the Corporate Governance Code. The process also took into account the outcome of checks conducted by the entity with regard to any outstanding economic or financial transactions and/or relationships with Poste Italiane Group Companies.
Lastly, in compliance with the Bank of Italy’s Supervisory Provisions and in light of the new rule Q.1.1. “Self-assessment of the Board of Statutory Auditors” included in May 2019 in the
Code of Conduct for the Board of Statutory Auditors of Listed Companies, issued in April 2018 by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili
(national association of chartered accountants), in February and March 2020 the Board of
Statutory Auditors carried out a self-assessment of its adequacy in terms of powers, functioning and composition with reference to the financial year 2019. The self-assessment
The external consultant’s self-assessment report gives a positive overall picture of Poste
Italiane’s Board of Statutory Auditors in terms of both its composition and its organisation and operation, except for one area for improvement concerning the timing of submission of the documentation for the Board of Statutory Auditors’ meetings. The report also showed that the remuneration of the supervisory body was inadequate.
BancoPosta”, the relevant regulations contained in the Consolidated Banking Law and in the Consolidated Law on Finance and the implementing regulations for banks, deemed applicable to BancoPosta by the relevant authorities, and in compliance with the
With reference to the assets allocated to IMEL (Istituto di Moneta Elettronica), the Board of
Statutory Auditors monitored the progress of audit activities also through meetings with the
Company’s corporate and control functions. The Board of Statutory Auditors also received extensive information on PostePay during a meeting dedicated to the exchange of information with the Supervisory Body of PostePay, during which the Board of the Subsidiary illustrated the main elements concerning the functioning of the internal control and governance system, administration and organisation, the functioning of IMEL’s RFC, as well as significant aspects of performance of operations. The outcome of the meeting with the Supervisory Body of PostePay highlighted: (i) positive performance of the economic-financial results, (ii)
adequacy of the organisational, administrative and accounting structure, (iii) that the outsourced activities have been contracted out and the pricing methods have been checked for adequacy.
RFC’s organisation and accounts have been unbundled with respect to the Company’s operations. In preparing the Separate Report for BancoPosta RFC, in compliance with the provisions of Law Decree 225/10, converted into Law 10/11, which introduced regulations applicable to BancoPosta RFC, requiring the accounting separation provided for in articles 2214 et seq. of the Italian Civil Code and preparation of a separate report, the Company introduced a specific dedicated system. During a specific meeting, the Board received information on the accounting system (“Special Ledger”) aimed at ensuring that transactions relating to Bancoposta RFC are recognised separately from those relating to the Company’s operations, for the purposes of application of the Bank of Italy’s prudential supervisory authorities provided for by Law 10 of 26/02/2011.
The Board of Statutory Auditors verified, at least every six months, the adequacy of the criteria adopted and, within the scope of our responsibilities as an oversight body, without responsibility for accounting controls, compliance with the applicable statutory and regulatory requirements. Based on the available data and information, the Board of Statutory Auditors believes that the level of control over management of BancoPosta RFC’s accounts is adequate; With regard to the supervision of the financial reporting process of BancoPosta RFC, reference should be made to the observations and recommendations set out in paragraph 4 of this report to the extent that they relate to said separate capital.
Auditors observed that the adequacy of this remuneration be subject to further analysis by the
RFC’s results and to those of the company as a whole. In addition to the half-yearly audits, the Board of Statutory Auditors also carried out a further in-depth analysis in order to verify the validity of the methodological framework and the reasonableness of the remuneration criteria applied, also through a specific meeting with the external consultant appointed by the
Company to prepare an analysis document of the new 2018-2019 Operating Guidelines.
With regard to control activities contracted out to Poste Italiane functions, the Board of
RFC - Circular 285/2013, Chapter 1 BancoPosta, Section II, Par. 5, assessed the costs, risks and benefits of the contract on an annual basis.
Auditors has noted that the outsourcing of the Risk Management and Internal Audit functions of BP Fondi SGR to the corresponding functions of BancoPosta has been carried out in synergy with the outsourcing of financial management activities by BancoPosta to BP Fondi
Third Party Providers, pursuant to the PSD2 Directive, was submitted to the Board of
Statutory Auditors, as well as to the Control, Risk and Sustainability Committee (“CCRS”).
At the end of the in-depth analysis of the CBI Globe platform and after discussions with the
Italy (following the inspection conducted in 2017 with the aim of assessing the governance, control and operational and IT risk management systems in relation to BancoPosta’s operations) and to the CONSOB (regarding the provision of investment services). In this regard, the Board of Statutory Auditors verified the state of progress of the corrective measures adopted following the Bank of Italy’s findings, ascertaining that at 31 December 2019 the programme defined following the Bankit 2017 inspection had reached a state of progress of 94%.
Offices, launched in May 2019 and completed in July 2019, to verify fulfilment of the obligations in terms of banking transparency, with particular regard to assessment of the regulatory, procedural and control structure. The Board has noted that, while the investigations were of a territorial nature, they also covered areas related to the audits carried out by the Authority in 2015 at its headquarters with regard to: (i) the storage of contract documents; (ii) the handling of unilateral changes to the terms and conditions offered to customers; (iii) the handling of complaints and (iv) the application of financial conditions via the related system. The undersigned Body has also noted that the results of the activity will not be formalised in an inspection report but will be communicated to the “central”
departments of the Bank of Italy for subsequent requests for clarifications/interventions.
According to reports from BancoPosta’s control functions, the Supervisory Authority, in its communication with the Company, identified an improvement in the complaints management process, the sending of proposals to customers for unilateral amendments to contracts and the filing of contracts signed in electronic format, as well as an area of improvement in the procedures applicable to the quantification of costs associated with requests for documents other than statements of account. The Compliance function’s action plan includes specific measures in relation to the areas of improvement that have emerged.
In addition, with CONSOB letter dated 18 April 2019 requesting data and information pursuant to art. 6-bis, paragraph 4, letter a) of Legislative Decree 58/1998, the Board of
Company the document with its own assessments for each of the profiles referred to by
CONSOB, for subsequent submission to the Authority on 3 June 2019.
Again with reference to inspection activities, the Board was informed that BP Fondi SGR has recently been involved in the Bank of Italy’s inspection activities, which should be reflected in the ordinary inspections of the Supervisory Authority.
The system of internal controls at BancoPosta is based on: • Control Bodies and Functions, involving, each for their respective competencies, the Board of Directors, the Control, Risk and Sustainability Committee, the Head of BancoPosta, the
Process” and the Product Governance Guidelines for investment, insurance and banking products; vii) the “Guidelines for the Identification of BancoPosta RFC’s Material Risk Takers”; viii) the Share Ownership Guidelines (SOGs); ix) update of the “Self-Assessment Guidelines on Capital Adequacy and the Liquidity Risk
Governance and Management System” and related update of the “Governance and
Operational Risk Management Guidelines”; x) the “Guidelines on the Remuneration and Incentive Policies of BancoPosta RFC”; xi) the new “Guidelines on Complaints Management of Poste Italiane S.p.A. - BancoPosta
The Board of Statutory Auditors met periodically and on a systematic basis with the internal control function ( “Internal Audit”) of BancoPosta, which confirmed, most recently in March 2020, in summary, that “the results of the verification activities carried out confirm an overall adequate and reliable internal control structure with some areas for improvement”.
Guidelines for the management of Transactions with Related and Connected Parties, Group
Anti-Money Laundering and BancoPosta, and of the Organisational Model pursuant to
Strengthening of the controls activated on the Essential Operating Functions, and the direction and monitoring of the territorial network and the corporate regulatory framework
(BancoPosta’s Guidelines and the delegation and sub-delegation model) were also highlighted.
The Board of Statutory Auditors also took note of the corrective measures taken by
BancoPosta following the Bank of Italy’s 2017 inspection, the CONSOB Plan and the various requests for data and news from CONSOB regarding investment services and real estate funds, as well as the measures to comply with the “MIFID II Directive” for investment services, the “IDD Directive” for insurance brokerage services and the “PSD2 Directive” for payment services. During meetings with the Internal Audit function, the latter presented the positive results of the audit of BancoPosta RFC’s Governance mechanisms, after which management had defined a number of improvement initiatives, mainly aimed at updating the reference regulatory framework (BancoPosta’s Organisational and Operating Regulations, the
With regard to BancoPosta’s Anti-Money Laundering function, recall that in 2018 the
Laundering Guidelines” and the “BancoPosta Anti-Money Laundering Guidelines”, which take account of the changes in organisational structure, in accordance with the provisions of the primary and secondary regulatory provisions of the sector that took place in 2019, were submitted to the Board of Statutory Auditors for examination, as well as to the Control, Risk and Sustainability Committee.
Money Laundering Prevention under the Risk Management function and separate controls that: - provide, in coordination with the Group’s Anti-Money Laundering function, advice and assistance to the various business and operational functions, conducting ex ante assessments of the risks relating to money laundering and the financing of terrorism as part of the process of developing new products and services and/or modifying the processes involved in their distribution and provision; - collaborate in continuous reviews of the organisational, procedural and IT-related aspects of efforts to combat money laundering and the financing of terrorism and the related operational restrictions, in cooperation with the Group’s Anti-Money Laundering function and in keeping with this function’s annual plan, contributing to the process of identifying the relevant requirements and the necessary compliance initiatives; - ensure the fulfilment of specific analyses and controls in coordination with the Group’s
Anti-Money Laundering function; - guarantee, with reference to the tasks assigned within the Group’s money laundering risk control model and in line with the related Operating Guideline, the continuous monitoring of the levels of service rendered, proposing any identified changes. For this purpose, the Head of
Money Laundering function, containing information for use in carrying out his or her tasks and in verifying the correct operation of the IT platform.
low” degree of inherent risk exposure deriving primarily from qualitative and quantitative elements linked to the large size and complexity of BancoPosta’s operations, the vulnerability of BancoPosta’s organisational structure and business processes was judged by the function to be of “little significance”, thus resulting in a “low” level of residual risk. The Board of
Statutory Auditors has taken note, at group anti-money laundering level, of a progressive increase in the sensitivity and quality of reports of suspicious transactions spontaneously submitted by the distribution network: in fact, with a lower number of reports submitted, there is a higher percentage of reports deemed to be justified by the Financial Information Units.
The average time to submit reports was about 18 days, compared to an average of 37 days in the reference category. In addition, in terms of training, there is 96.3% average coverage of anti-money laundering courses in the target population and 95.6% average coverage of SOS
courses in the target population. The Company has allocated approximately €4.0 million for the two-year period 2020-2021 for IT investments to strengthen controls and corrective measures, and 81.9 thousand requests for legal checks were recorded. The anti-money laundering complaints notified in 2019 by the Ministry of the Economy and Finance mainly concern violations of art. 51 of Legislative Decree. 231/2007 for omitted/late notification to the MEF - breaches on cheque trading - mainly related to the new cheque dematerialisation process (CIT procedure), which generated operational errors in the post office, and to a lesser extent related to breaches of art. 35 of Legislative Decree 231/2007 (omitted reporting of suspicious transactions) and are traceable to a single context. With reference to these data, the
Board has requested an analysis of the historical trend during the year 2020, possibly accompanied by a benchmark for the period.
In addition, also in the anti-money laundering area, 52% of the interventions identified in the previous Annual Report were completed as at 31 December 2019, in line with the defined planning. The prevalence of re-planned interventions is due to implementation of the new
Group infrastructure for management of the reinforced measures (electronic practice of adequate verification), which made it necessary to integrate subsequent business with the new solutions. In this respect, the Board recommends maximising efforts to have this project fully operational. New measures of strict compliance are also planed, aimed at adopting a single anti-money laundering platform (replacing the Poste Vita and BP Fondi SGR solutions).
with the head of the Group Anti-Money Laundering function, noted that all of the intervention activities requested by the Supervisory Authority had been carried out and submitted for examination.
BancoPosta Anti-Money Laundering Guidelines and the start of strengthening of second-level controls through, among other things, the preparation of specific management reporting.
In general, the Compliance function’s overall assessment of the activities completed in 2019 was positive, net of the information system, for which the assessment of compliance with regulatory requirements has an overall judgement of partial adequacy. For the 2020 plan, the
Board recommends giving maximum priority to strengthening of the existing measures and development of the consulting platform and the profiling questionnaire and functionalities envisaged on the digital channel. In particular, the Board of Statutory Auditors asks to be constantly updated with regard to: i) compliance activities related to customer profiling, especially for the review of the profiling questionnaire and related algorithms for defining customer profiles, as well as updating the logic underlying the controls with objective data; ii) planned interventions on investment services, especially with regard to strengthening and consolidating existing functions (divestments of insurance investment policies,
Affairs, the centralisation of BancoPosta Fondi SGR’s Risk Management and Internal
In order to ensure adequate management of situations of dissatisfaction or potential conflict with its customers, Poste Italiane has adopted a centralised organisational model for handling complaints and customer service, including those relating to BancoPosta’s operations. The objective of this model is to maximise attention on the needs of customers throughout the entire contractual relationship, ensuring adequate interactions, also depending on the level of experience and knowledge of the same and the complexity of the product. In implementation of this model, BancoPosta has outsourced the handling of complaints to the Chief Operating
Office (COO) of Poste Italiane S.p.A. and to PostePay S.p.A. for disputes relating to the payment products/services entrusted to the latter. In particular, the related operational processes have been entrusted to the Financial Complaints Management function (hereinafter
(hereinafter the “Supplier”). According to what has been represented, the contracting/outsourcing model aims to ensure a clear identification of roles and responsibilities between the parties, as well as an adequate system of control and supervision by BancoPosta, also through the adoption of specific Performance Indicators updated periodically.
Management Guidelines” were submitted to the Board of Statutory Auditors, as well as to the
RFC Complaints Management Guidelines”, prepared on the basis of the Bank of Italy’s
Directive, to action on cross-functional areas with an indirect impact, especially those aimed at strengthening the information system (with particular regard to the definition of Data
(verification of insurance requirements and reformulation of specific questions) and (ii) the training plan, assessment and updating test of the skills of the “MIFID” resources was implemented; - in the insurance brokerage field, tools were implemented, in compliance with IDD
forecasts, to support consultancy for the proposal of the new modular protection offer, offsite distribution of standard group policies and third-party liability policies (pilot distribution started); - in the area of banking and postal savings services (i) application of the product governance process and formalisation of the single guidelines was completed, (ii) supervision of the complaints management process was strengthened and the BancoPosta Complaints
With regard to Business Continuity Management, in 2019, the Board checked on the progress made, in relation to the expected timing, in implementing the action plan drawn up following the Bank of Italy’s inspection in the first half of 2017, regarding operational and IT risk. The same Supervisory Body that had noted that the Plan would continue in 2019, and in the prior year’s report had recommended accelerating the realisation of implementation measures aimed at completing the Data Centre Transformation, which will upgrade the IT architecture used in Poste Italiane’s operations and for disaster recovery purposes, acknowledged that completion of the Data Centre Transformation project is envisaged for the end of 2020.
Board of Statutory Auditors and to the CCRS, as the modified regulatory environment and
organisational changes in the Poste Group have made it necessary to adapt the current document structure of the Business Continuity Plan for Financial Services and Payment
Fondi SGR and outsourcing to the Chief Operating Office of back-office activities and to the
CA function of anti-fraud and anti-money laundering activities), together with developments in sector regulations (PSD2, EBA) and the issuance of the Operational and Security Incident
In 2019, the Board of Statutory Auditors increased its focus on ICT Risk by meeting with the relevant structures at various times for in-depth analysis, including through induction sessions. The Board believes that it is of fundamental importance to ensure compliance with the commitments, time frames and planned investments, particularly in the ICT and Security areas, given the specific importance of the risks associated with IT security and Cyber Risk.
The Board of Statutory Auditors has taken note of the activities carried out by BancoPosta’s
The Board of Statutory Auditors, in agreement with the relative function of BancoPosta, assessed the performance of the RAF indicators during 2019, on a quarterly basis through the
On this subject, it should be noted that, also on the recommendation of the Board of Statutory
Auditors, a number of new or rationalised monitoring indicators have been included in the 2019 RAF, following the 2019 risk assessment, making the information required from time to time systematic.
This Supervisory Body also verified the levels of materiality of the risks for BancoPosta with particular regard to: (i) the “financial leverage”, structurally higher than that of a bank because of the composition of BancoPosta’s assets, which has fallen below the limit set by the RAF
for growth in volumes and value of assets and has been reduced to 3% through the provision of BancoPosta’s profits for €85 million; (ii) the “cost of operating risks”, the trend of which was down in 2019 compared to 2018, due to the significant reduction in operating losses and related capital absorption in 2019.
The most significant risks for BancoPosta this year, in addition to operational, leverage and spread risks, is interest rate risk (IRRBB); regulatory risk is included this year as a risk of medium materiality, since, having implemented the EBA IRRBB Guidelines, no other regulatory changes are expected in the near future.
In this regard, the Board recommends continuous and close monitoring of the key indicators set out in the Company’s Risk Appetite Framework (“RAF”) for 2020.
As regards leverage risk, as mentioned above, the leverage ratio had fallen below the RAF
limit in 2019, due to the growth in volumes and value of assets. Rebalancing of the RAF’s
Risk Capacity limit values (3.00%) was achieved by means of a provision of profits of €85 million by BancoPosta, approved by the Board of Directors on 5 March; the Board of
As indicated above for the accounting effects, the Board of Statutory Auditors also considers it necessary to verify and constantly monitor the effects of the Covid-19 emergency in terms of prospective risk for an assessment in terms of possible impact on the RAF indicators.
BancoPosta’s Risk Management function, as part of the 2020 budget process, estimated the impact of the scenarios on the risk profile ex ante, assessed the prospective adequacy of capital and identified the Risk Appetite Framework in accordance with the strategic objectives and guidelines at Group level.
The proposed Risk Appetite Framework for the year 2020: • assumes the allocation of €85 million to the reserve for profits generated by BancoPosta in 2019, with a corresponding increase in equity; • reflects, with regard to interest rate risk, adoption of the new measurement model in line with the new prudential regulations; in this regard, it should be noted that the
BancoPosta triggers show a level of exposure that is structurally higher than the average level of banks for which the regulations set attention thresholds (supervisory outlier test)
at 15% and 20%, due to the profound differences in business models and, therefore, in capital allocation between different risk categories; • highlights, for the Leverage Ratio, thresholds revised downwards compared to previous years, due to the lower need to maintain a capital “buffer” in excess of Pillar 2, following the adoption of the new Interest Rate Risk Measurement Model, which reduces
BancoPosta as a minimum reference threshold, and the new limit level of 2.6% is proposed; for the indicator, we also note a refinement of the calculation methods, aimed at making it more stable and more relevant (netting of the change in the valuation reserves for HTCS securities and consideration of the average INPS account balance to mitigate the volatility associated with pension payments); Annual Report 2019 Poste Italiane Group
• expands the set of metrics for which Risk Appetite, tolerance and capacity triggers are defined, including a new measure relating to the sensitivity of net interest income to movements in the Risk Free curve, an integration consistent with development of the relevant regulations and with forecasts by the Bank of Italy.
Finally, at the date of preparation of this report, the ICAAP-ILAAP/2019 report has not expired, due to the extension granted to the banking system by the Bank of Italy to 30 June 2020 and, therefore, this report will be prepared by BancoPosta’s Risk Management function in the coming months.
In accordance with CONSOB requirements, we declare that in the performance of our duties we have not been made aware of omissions, instances of negligence, irregularities or evidence of inadequacies in the organisational structure, internal control system or administrative and accounting system considered relevant for the purposes of this report.