Re Audit and Compliance
Banco Bilbao Vizcaya Argentaria SA
5 July 2002
Regulation of the Audit and Compliance Committee of BBVA's Board of Directors
1. Legal Nature
The Audit and Compliance Committee, pursuant to Article 48 of the Corporate
Bylaws of Banco Bilbao Vizcaya Argentaria, is a body of the Board of
Directors which has no executive functions and which is governed by the
rules contained in these Regulations.
2. Purpose
This Committee, formed exclusively by independent Directors, has as its
mission to assist the Board of Directors in the supervision of both the
financial statements as well as of the exercise of the function of control
of the BBVA Group.
In this regard, the following represents the sphere of its functions:
• To supervise the sufficiency, adequacy and efficient functioning of
internal control systems in such a manner that, on the one hand, the
correctness, reliability, sufficiency and clarity of the financial
statements of both the Bank as well as of its consolidated Group, as
contained in the annual and quarterly Reports and, on the other hand, the
accounting or financial information which may be required by the Bank of
Spain or other regulatory bodies, including those pertaining to countries
where the Group carries out activities, is assured.
• To monitor compliance with applicable domestic or international
regulations, in matters relating to money-laundering, conduct in the
securities markets, data protection, and the scope of the Group's actions in
the area of competition, as well as that the requests for information or
action made by official bodies holding competency in these areas are
fulfilled in time and form.
• To assure that the Ethical Codes and Code of Conduct, internal and
vis-a-vis the securities market, applicable to the Group's personnel, meet
regulatory requirements and are adequate for the Institution.
• To especially strive to comply with the provisions contained in BBVA's
Director's Statute, as well as for the compliance by Directors of
regulations applicable to conduct in the securities markets.
1. Functions
Within the objective scope established in the preceding section, the
Committee will exercise the following functions:
1. It will analyze, prior to presentation to the Board, and with the necessary
in-depth analysis in order to represent the correctness, reliability,
sufficiency and clarity thereof, the financial statements of both the Bank
as well as its consolidated Group, as contained in the annual and quarterly
Reports, having available all necessary information with the level of
aggregation it deems appropriate, for which it will have the necessary
support of the Group's executive management, especially, its Financial
Division, as well as the Company's Auditor.
For the best performance of this function, the Committee may delegate to its
Chairman the monthly analysis of the financial statements.
The latter, assisted by the Secretary, will procure sending to the
Committee's members sufficiently in advance of each meeting, the necessary
information in order that they may attend the meetings with the greatest
degree of preparation possible.
2. It will select the external Auditor for the Bank and its consolidated Group,
as well as for all companies integrated within the latter, both in Spain as
well as in other countries where they are located, procuring, for reasons of
swiftness and simplification in procedures and communication, that the same
auditing firm be appointed for all of them, unless, for reasons to be
evaluated by the Committee, that should not be possible or appropriate.
The term of the external auditing contracts-except for exceptions which may
come from applicable Legal rules-shall be for annual periods, and may be
renewed year-to-year if the quality of the service is satisfactory and an
agreement is reached as to remuneration.
Notwithstanding the above, every five years, a selection procedure will be
followed, open to the most prestigious auditing firms, in order to select
the firm which presents the best equilibrium between the quality of service
offered-the minimums of which shall be set as a requirement prior to the
selection-and the amount of remuneration. This will be presented to the
Board of Directors in a specific item of its Agenda.
3. It shall strive for the independence of the external audit in a dual sense:
• avoiding that alerts, opinions or recommendations of the auditors may
be conditioned.
• establishing the incompatibility between rendering auditing and
consultancy services, unless no alternatives of equal value as to
contents, quality or efficiency exist in the market as opposed to those
which the auditing firm or companies belonging to its group may render,
the approval of the Committee being required in such case, which may be
advanced by delegation to its Chairman.
1. It will verify with the adequate frequency that the performance of the
external auditing program is carried out in accordance with the conditions
contracted, and that the requirements of the competent official bodies-in
particular the Bank of Spain-and of the Bank's governing bodies, are thereby
satisfied. Furthermore, it will periodically request from the Auditors-at
least once per year-an evaluation of the quality of the Group's internal
auditing procedures.
For the fulfillment of this function, the auditors will make available to
the Committee such information as is available to them for this purpose,
which may include, as the case may be, their 'work product'.
2. The Committee will be made aware of those violations, situations which make
adjustments necessary or anomalies, which may be detected in the course of
the performance of the external audit, which are material, material being
taken to mean those which, either separately or on the whole, may yield a
significant and material impact or damage to the net worth, results or
reputation of the Group, the perception of which shall be at the discretion
of the external Auditor who, in case of doubt, must choose to report the
same.
Such communication must be given, as soon as it is ascertained, to the
Chairman of the Committee.
6. It will analyze, and approve, as the case may be, the Annual Internal
Auditing Plan, as well as such other occasional or specific additional plans
as may be placed into practice due to reasons of regulatory changes or the
organizational needs of the Group's business.
Furthermore, with the frequency as advised by the circumstances, the
Committee will perform a follow-up of the above, and may delegate to its
Chairman the performance of the preparatory tasks which facilitate the
Committee's work.
If substantial deviations occur within the execution periods of the actions
contemplated in the plans, or in the scope of the reviews, the Committee
will be presented with the causes thereof. Any modifications which appear
appropriate to introduce in the Internal Auditing plans will be submitted to
the Committee for approval.
7. It will be made aware of the degree of compliance on the part of the audited
units with the corrective measures recommended by Internal Auditing during
previous actions, and it will report to the Board those cases which may
entail a material risk for the Group.
The Committee will be informed of irregularities, anomalies or breaches,
provided that they are material, which Internal Auditing has detected in
the course of its actions, material being taken to mean those which may
yield a significant and material impact or damage to the net worth,
results or reputation of the Group, the perception of which shall be at
the discretion of the Internal Auditing division which, in case of
doubt, must choose to report the same.
Such communication must be given, as soon as it is ascertained, to the
Chairman of the Committee.
8. It shall be made aware of and render an opinion on the appointment or
substitution of the Director of Internal Auditing.
9. The Committee will procure that Internal Auditing shall have the adequate
capacitation and resources in order to carry out its functions in the Group,
both as regards personnel, as well as material elements, systems,
procedures, and action manuals. It will also be made aware of any obstacles
which may have arisen against the performance of its mission.
10. The Committee will be made aware of the reports by external supervisory
bodies, in particular those of the Bank of Spain, Spanish Securities Market
Commission, Directorate General of Insurance, Competition/Antitrust Courts,
and similar Institutions in Spain or abroad, which refer to the sphere of
its functions in the terms expressed above.
For this purpose, the Divisions of the Bank to whom General Comptrolling,
Internal Auditing and Compliance report, shall take care that the pertinent
reports are notified to it by the receiving units in order that they may be
forwarded, within a timeframe in line with the relevance of the matter, to
the Audit and Compliance Committee, channeled through its Chairman.
The Committee will verify that the instructions and recommendations of the
above-mentioned supervisory bodies for correcting the irregularities,
missing measures or insufficiencies which may have arisen from their
inspection actions, are complied with in time and form.
11. The Committee will review all material changes referring to the accounting
principles used and to the presentation of financial statements, and will
assure that adequate publicity thereof is provided, it being expressly
stated for the record that the Committee has performed the said review.
12. It will examine the draft Codes of Conduct and reforms thereof, as prepared
by the pertinent area of the Group, and will render its opinion prior to
proposals being made to the Bank's corporate bodies.
13. It will analyze, and approve, as the case may be, the Annual Compliance
Plan, as well as amendments thereto, and will monitor its execution, as
frequently as deemed necessary.
The Committee will also be informed of the irregularities and serious
anomalies detected in the course of the control actions of the Compliance
Area, the perception of which shall be at the discretion of the Compliance
Area which, in case of doubt, must choose to report the same.
Such communication must be given, as soon as it is ascertained, to the
Chairman of the Committee.
14. It shall be made aware of the matters which affect the conduct of the
members of the Bank's Board of Directors relative to the Director's Statute
and of their actions within the sphere of the securities markets, on which
the Board shall be informed, when necessary in the Committee's judgement.
1. External and Internal Collaboration
The Committee may outsource the contracting of advisory services in material
matters when it is considered that, due to reasons of specialization or
independence, these cannot be rendered by experts or technical staff of the
Group.
Furthermore, the Committee may obtain the personal collaboration and reports
of any member of the management team when it is considered that such
collaboration and reports are necessary for the fulfillment of its functions
in material matters.
The habitual channels for making these requests shall be the hierarchical
line, although, in exceptional cases, the request may be made directly to
the person whose collaboration is requested.
2. Composition, Renewal, Removal
The Audit and Compliance Committee shall be formed by at least four Members,
independent Directors, one of whom shall act as Chairman by resolution of
the Board of Directors.
The Committee Members need not necessarily be experts in finance, but must
understand the nature of the Group's businesses and the basic risks
associated therewith. It will also be necessary for them to be willing to
apply their judgement capacity, deriving from their professional experience,
with an independent and critical attitude. In any case, its Chairman shall
have experience in financial management and knowledge of the accounting
standards and procedures required by the sector's regulatory bodies.
The Committee will appoint a Secretary who may, but need not, be a Committee
member, but may not be an executive Director.
In case the Chairman is unable to attend a meeting, his functions shall be
carried out by the Committee member with the greatest seniority and, in case
of a coincidence of seniority, by the oldest.
The renewal, re-election and removal of Committee members shall be governed
by the rules established by the Bank's Board of Directors.
3. Meetings
The Audit and Compliance Committee will meet as frequently as is necessary
in order to fulfill its functions, although an annual meeting schedule shall
be established in accordance with its tasks.
Meetings will be called, except for exceptional cases, duly in advance, by
the Committee Chairman. The meeting notice, except in cases of just cause,
will include the agenda, and the available documentation considered relevant
for the meeting shall be sent to the Committee members, unless in the
Chairman's judgement, it is not appropriate to do so due to reasons of
confidentiality.
Managers to whom the areas of General Comptrolling, Internal Auditing and
Regulatory Compliance report, may be called to the meetings, as well as, by
request of the latter, those persons integrated within the said areas who
have knowledge or responsibility in the matters included on the agenda, when
their presence at the meeting is deemed appropriate. However, only Committee
members and the Secretary may be present when the results and conclusions of
what is addressed at the meeting are evaluated.
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