ANNUAL REPORT 2008 - Polymer Bank Notes of the World

INTERNAL CONTROL LAYERSThe internal control structure of the ECB is basedon an approach in which each organisationalunit (section, division, directorate or directorategeneral) is responsible for managing its own risksand controls, as well as the effectiveness andefficiency of its operations. Each organisationalunit implements operational control procedureswithin its area of responsibility in accordancewith the risk tolerance set ex ante by theExecutive Board. For example, a set of rulesand procedures – known as a Chinese wall – isin place to prevent inside information originatingin the areas responsible for monetary policyfrom reaching the areas responsible for themanagement of the ECB’s foreign reserves andown funds portfolio. In 2008 the ECB continuedto make progress in its approach to operationalrisk management. First, a central unit in theDirectorate General Human Resources, Budgetand Organisation coordinated a comprehensivetop-down exercise in which business areasidentified operational risks which, if they wereto materialise, could have significant negativebusiness, reputational or financial consequencesfor the ECB. On the basis of this exercise, actionplans were established for the treatment of suchrisks. Second, the ECB and the euro area NCBsdeveloped a framework for operational riskmanagement for Eurosystem tasks and processes,which will be implemented as of 2009.Independently from the internal control structureand risk monitoring of the ECB, audit missionsare performed by the Directorate Internal Auditunder the direct responsibility of the ExecutiveBoard. In accordance with the mandate definedin the ECB Audit Charter, 9 the ECB’s internalauditors provide independent and objectiveassurance and consulting services, bringing asystematic approach to evaluating and improvingthe effectiveness of risk management, control andgovernance processes. The Directorate InternalAudit abides by the International Standards forthe Professional Practice of Internal Auditing ofthe Institute of Internal Auditors.A Eurosystem/ESCB committee, the InternalAuditors Committee, which is composed ofthe heads of internal audit at the ECB and theNCBs, is responsible for coordinating theauditing of Eurosystem/ESCB joint projects andoperational systems.In order to enhance corporate governance,the Governing Council created an ECB AuditCommittee in April 2007, composed of three ofits members, with John Hurley (Governor of theCentral Bank and Financial Services Authorityof Ireland) as Chairman.CODES OF CONDUCTThere are three codes of conduct in place at theECB. The first is for the members of the GoverningCouncil and reflects their responsibility tosafeguard the integrity and reputation of theEurosystem and to maintain the effectiveness ofits operations. 10 It gives guidance to, and setsethical standards for, the members of theGoverning Council and their alternates whenexercising their functions as members of theGoverning Council. An adviser has also beenappointed by the Governing Council to provideguidance to its members on some aspects ofprofessional conduct. The second code is the Codeof Conduct of the ECB, which gives guidance to,and sets benchmarks for, the staff of the ECB andthe members of the Executive Board, all of whomare expected to maintain high standards ofprofessional ethics in the performance of theirduties. 11 In accordance with the Code of Conduct’srules against insider trading, the ECB’s staff andthe members of the Executive Board are prohibitedfrom taking advantage of inside information whenconducting private financial activities at their ownrisk and for their own account, or at the risk andfor the account of a third party. 12 The third code isa Supplementary Code of Ethical Criteria for the9 This charter is published on the ECB’s website to foster thetransparency of audit arrangements in place at the ECB.10 See the Code of Conduct for the members of the GoverningCouncil, OJ C 123, 24.5.2002, p. 9, its amendment, OJ C 10,16.1.2007, p. 6 and the ECB’s website.11 See the Code of Conduct of the European Central Bank in accordancewith Article 11.3 of the Rules of Procedure of the European CentralBank, OJ C 76, 8.3.2001, p. 12 and the ECB’s website.12 See Part 1.2 of the ECB Staff Rules containing the ruleson professional conduct and professional secrecy, OJ C 92,16.4.2004, p. 31 and the ECB’s website.ECBAnnual Report2008205