Annual report 2011 - VTB

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VTB Annual Report 20115. Corporate governance92effective and adequate functioning of the internalcontrol system, in accordance with global bestpractices in corporate governance.The Committee’s activity is governed by theRegulations of the Audit Committee of theSupervisory Council of VTB Bank.More detailed information about the composition andactivity of the Audit Committee can be found in theSupervisory Council section on pages 80–81.Statutory Audit CommissionThe Statutory Audit Commission, operating withinthe Bank, verifies the Bank’s compliance with theapplicable legislation and other statutory instrumentsthat govern its activity, the proper functioning ofthe Bank’s internal controls, and the legality oftransactions carried out by the Bank.The Statutory Audit Commission is elected at theAnnual General Shareholders Meeting of the Bank,which determines its size and composition for theperiod to the next annual General ShareholdersMeeting.The composition of the Statutory Audit Commission,elected at the Bank’s Annual General ShareholdersMeeting on 3 June 2011, is as follows:Vladimir V. Lukov – Chairman of the Statutory AuditCommission, Professor at the International Universityin Moscow;Tatyana A. Bogomolova – Member of the StatutoryAudit Commission; Deputy Head of the Departmentfor Organisations in the Non-productive Sector andForeign Property; and Head of the Department forCredit and Finance, Foreign Trade, Land Use and TaxOrganisations of the Federal Agency for State PropertyManagement;Marina A. Kostina – Member of the Statutory AuditCommission; Deputy Head of the Consolidation andAnalytics Unit, Department for Organisations in theNon-productive Sector and Foreign Property of theFederal Agency for State Property Management;Zakhar B. Sabantsev – Member of the Statutory AuditCommission; Head of the Banking Sector Monitoring,Consolidation and Analytics Unit of the FinancialPolicy Department of the Russian Ministry of Finance;Natalia A. Satina – Member of the Statutory AuditCommission; Head of the Banking Unit of the FinancialPolicy Department, Russian Ministry of Finance;Dmitry V. Skripichnikov – Member of the StatutoryAudit Commission and Deputy Director of theCorporate Governance Department of the RussianMinistry of Economic Development.Internal Control DepartmentThe Internal Control Department (ICD) operates withinthe Bank to provide direct support to its governingbodies, in order to ensure that both the Bankand VTB Group work effectively. The ICD monitorsinternal control systems, conducts targeted andGroup-wide inspections, and provides impartialrecommendations on how banking operations andcontrol procedures may be improved.The ICD is an independent structural departmentthat operates under the direct supervision of theSupervisory Council of VTB Bank, which approvesits plans and monitors their implementation. TheSupervisory Council also reviews reports on theresults of ICD audits and its monitoring of internalcontrol systems, as well as on the implementation ofthe ICD’s recommendations and the measures takento address issues that have been identified.The Supervisory Council also considers mattersrelated to the resourcing of the ICD, including theappointment of the Department’s Head.The Department’s organisational structure comprisesa number of units responsible for day-to-daymonitoring, the coordination of internal controlsystems across the VTB Group and auditing, as wellas a Control Group, which supervises the Bank’sactivities as a participant in the securities marketand the operations of the specialised depositary forinvestment funds, mutual funds and pension funds.To increase the effectiveness with which internalcontrol systems are monitored in Bank branches,the ICD structure includes dedicated internal controlteams.The Internal Control Department is responsible for:Monitoring and assessing the effectiveness of theinternal control system;Monitoring the operation of the risk managementsystem;Verifying the reliability and adequacy of proceduresinstituted to safeguard the Bank’s property;Verifying the reliability, completeness, objectivity andtimely preparation of accounting and managementreports;Verifying the compliance of self-regulating institutionswith statutory requirements and standards;Verifying the adequacy and reliability of internal controlover the use of computerised information systems;Establishing uniform approaches to the organisation ofinternal control systems in subsidiary organisations.Within its terms of reference, the ICD liaises withthe Bank’s Audit Committee and external auditors,providing information on the internal control systemand reporting any deficiencies identified by thedepartment during the period being audited.VTB Bank’s independent auditorVTB Bank appoints an independent professionalfirm of auditors to externally audit and verify thecompliance of its annual financial statements.In accordance with the applicable legislation, theauditor is chosen by means of an open tender, whichis based on the following selection criteria:Qualifications and impartiality;Work plan and the scope of the auditing procedures,including the proposed duration of the external auditor’sservices for auditing the Bank’s financial statements;Independence of the auditor and potential conflictsof interest, including whether or not the externalauditor has proprietary interests in the Bank (exceptfor receiving payment for auditing services), andwhether or not there is any affiliation between theexternal auditor and the Bank or members of theBank’s governing bodies;The level of remuneration payable by the Bank to theexternal auditor;The provision or otherwise by the external auditor ofconsulting services to the Bank as defined in Article1, paragraph 6 of the Federal Law on Auditing.The Audit Committee has the responsibility foroverseeing the tender process and for draftingrecommendations on the award of the role ofindependent auditor for presentation to the Bank’sSupervisory Council. It is the Supervisory Council thatapproves the appointment, which is endorsed at theAnnual General Shareholders Meeting.Based on its inspection of the financial andcommercial operations of VTB Bank, the independentauditor prepares a report, which is submitted to theAudit Committee for preliminary review. The finalaudit report is submitted to the Bank’s SupervisoryCouncil and is also presented to the Annual GeneralShareholders Meeting.Ernst & Young Vneshaudit JSC, a Russian subsidiaryof one of the world’s leading auditing firms, wasappointed external auditor to VTB Bank in 2011.93
VTB Annual Report 20115. Corporate governance94Ernst & Young Vneshaudit JSC has been VTB Bank’sexternal auditor since 2003. Besides the paymentit receives for auditing services, the company hasno other proprietary interests in VTB Bank, hasno relationship of affiliation with the Bank, withmembers of its governing bodies or VTB subsidiaries,and has not provided consultancy services to theBank as defined in Article 1, paragraph 6 of theFederal Law on Auditing.5.8. Relations with individualshareholdersVTB Bank follows a policy of open communicationswith regard to all its activities. This is clearly seen inthe Bank’s interaction with its shareholders.In 2011, VTB continued to improve the channels ofcommunication with its shareholders by increasingthe effectiveness of existing forms of interaction andcreating new ways to work with them.VTB’s Individual Shareholders Relations departmentis responsible for communications with individualshareholders. The department has put in place anumber of ways in which shareholders can obtainfull updates on the Bank’s operations and detailedanswers to all of their questions. All enquiries fromindividual shareholders are reviewed and answeredpromptly, and are also analysed in order to establishif communications with the Bank’s shareholders maybe further improved.Open Days and WorkshopsIn 2011, VTB Bank expanded the geographical range andthe size of its meetings with shareholders. Up until 2010,meetings were held only in Moscow and St. Petersburg,but during the year under review these activities spreadfar beyond the metropolitan areas. As a result, 2011was a record year in this context, with 22 meetings beingheld with individual shareholders in different regions ofthe country.Open days held in Moscow and St. Petersburgat the Bank’s Shareholder Interaction Centrestake the form of individual counseling sessions.During these meetings, shareholders can receiveprofessional advice on any matters related to thestock from specialists employed by VTB Bank and itssubsidiaries (VTB24, VTB Insurance, VTB Registrar).Members of the Shareholders’ Consultative Council(SCC) of VTB Bank always participate in VTB OpenDay events, helping individual shareholders tounderstand the work of the stock market. In addition,SCC members listen to shareholders’ views and passthem on to the Bank’s management.Another channel of communications withshareholders, which has been developing duringthe reporting year, is the holding of workshopsin different regions of Russia. During 2011, morethan 1,000 individual shareholders from Ufa,Voronezh, Novosibirsk, Volgograd, Krasnodar,Samara, Stavropol and St. Petersburg participated inthese workshops. During the course of the events,representatives of VTB Group provided consultationon personal finance, the ownership and managementof VTB shares, financial performance, depositaryand brokerage services, the activities of the SCC andbeneficial products and services.In 2011, VTB Bank also introduced a new practiceof members of the Management Board participatingin regional workshops via video conferencing. VasilyTitov, First Deputy President and Chairman of theManagement Board, and Ekaterina Petelina, memberof the Management Board, provided answers toshareholders during video workshops in 2011. Inaddition, the Bank continued to work on improvingthe workshop programme. Speakers’ presentationswere optimised to meet shareholders’ needs andinterests, and particularly to cover the most importantand topical issues. Other key people from VTB, VTB24,VTB Insurance and VTB Registrar have taken part inthe regional workshops, and the Corporate Secretaryof the Bank has participated since the end of 2011.NewslettersInvitations to participate in VTB workshops aresent to all regional shareholders, so that those whoare unable to attend an event are informed of thecommunications channels that exist. So that theymay receive the most up-to-date information, VTBoffers its shareholders the opportunity to sign up forthe Bank’s monthly “VTB Shareholder Newsletter” byregistering on the VTB website.The VTB Shareholder Newsletter is also distributedto shareholders who have registered their emailaddress on a VTB24 Depositary form. The subscriberbase comprises approximately 35,000 VTBshareholders.The VTB Shareholder Newsletter contains the mostup-to-date and relevant information for the Bank’sshareholders, including the Group’s financialperformance, information about the AGM anddividend payments, invitations to meetings withother shareholders and reports on events that havetaken place, news on VTB Group companies andinformation on the activities of the SCC. The successof this method of communicating with shareholdersis clear from the growing subscriber base, as well asfrom positive feedback received from shareholders.In 2011, following legislative changes, VTB sentemails to shareholders who were to lose dividendsthat had been unclaimed for three years. Thesechanges impacted only unpaid dividends for 2007announced by OJSC VTB Bank and OJSC VTB BankNorth-West. As a result of the email notifications,dividends, which would otherwise have been lost,were paid to 108 VTB shareholders (out of 555shareholders to whom emails were sent) and to241 shareholders of VTB Bank North-West.Prompt adviceShareholders can receive prompt consultation inShareholders’ Support Centres and by telephone.The Bank’s website and all its printed materials alsoprovide contact details. The Bank’s advisers providethe most up-to-date information on matters related toownership and disposition of VTB shares, the currentshare price and dividends. They handle more than1,500 email enquiries and phone calls per month.Individual shareholders can also receive supportthrough the VTB Unified Information Service, wherecall-centre operators and an automated menu provideinformation about VTB shares.Shareholders’ Consultative CouncilThe Shareholders’ Consultative Council (SCC) isan independent advisory body consisting of tenshareholders. Its work in 2011 was based mainlyon meetings with VTB shareholders and themanagement teams of the Bank and its subsidiaries.During the reporting year, members of the SCCparticipated in regional workshops as externalexperts, answered shareholders’ questions regardingthe Council’s activities, and provided individualcounselling during Open Day events. A new formatof interaction with individual shareholders was ameeting with a shareholder action group in Moscowin September 2011.In 2011, the Shareholder Consultative Council heldfive meetings, which were attended by membersof the SCC and managers of the Bank and itssubsidiaries, including VTB Insurance, VTB Capitaland VTB Registrar. Among the key issues on theagenda was the privatisation of a 10% stake inVTB Bank, the acquisition of the Bank of Moscow andthe outdoor advertising agency News Outdoor, thefinancial results of VTB Group, progress reports onthe Group’s subsidiaries and the SCC, and changesto the Regulation of the Shareholder ConsultativeCouncil. In one of these meetings SCC members hadthe opportunity to discuss current issues with SergeyDubinin, Chairman of the Supervisory Council ofVTB Bank.95
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