Corporate Governance Statement
Risks and risk management
Capital adequacy management
Compliance
Internal Audit
Auditor

Corporate Governance Statement 

Taaleri’s corporate governance is based on the laws of Finland and the company’s Articles of Association. The company complies with the rules, regulations, and guidelines for listed companies issued by Nasdaq Helsinki Ltd and the Finnish Financial Supervisory Authority as well as the Finnish Corporate Governance Code 2020 published by the Securities Market Association.

The auditing firm of Ernst & Young Oy has verified that the statement has been issued and that the general description of internal audit and risk management systems associated with the financial reporting process conforms to the same in financial statements.

The code is available on the Securities Market Association website www.cgfinland.fi.

Taaleri’s Corporate Governance Statement referred to in the Corporate Governance Code. 

Risks and risk management

The task of risk management is to identify, assess, measure, treat and control risks in all Taaleri Group’s businesses that influence the realization of the Group’s strategic and operative goals, as well as to oversee compliance with that the principles approved by the Taaleri Plc Board of Directors.

Risk management aims to mitigate the likelihood of unforeseeable risks being realized, and their influence on and the threat they present to Taaleri Group’s business operations. Risk management supports achievement of strategic goals by promoting better utilization of opportunities in all activities and more efficient distribution of risk-taking capacity to the different functions and projects within the defined risk appetite framework.

Taaleri Group’s risks are divided into five main categories: strategic and business risk, credit risk, liquidity risk, market risk and operational risk (including compliance risk). In addition, Taaleri follows the development of political risks. The principles of Taaleri's risk and capital adequacy management are described in note 38 to the 2019 financial statements.

The risk capacity of the Taaleri Group consists of a properly optimized capital structure, profitability of business operations and qualitative factors, including good corporate governance, internal control, and proactive risk and capital adequacy management. Taaleri Group’s attitude towards risk-taking is based on careful consideration of an adequate risk/return relationship. Taaleri Plc’s Board of Directors has decided that the Group may not in its activities take a risk that jeopardizes the target level set for the company’s own funds. 
 

Segment-specific risks

The main risks of Taaleri’s Wealth Management segment consist mainly of operational risks and, to a slight extent, credit risks. The result of the Wealth Management segment is influenced by the development of assets under management, which depends on the progress of the private equity funds’ projects and the development of the capital markets. The profit development is also influenced by the realization of performance fee and commission income tied to the success of investment operations. On the other hand, private equity fund management fees are based on long-term contracts that bring in a steady cash flow.

The insurance and investment activities carried out by Garantia Insurance Company are central to Taaleri's risk position. The main risks associated with Garantia’s business operations are credit risks arising from guaranty op-erations, and the market risk regarding investment assets. Garantia’s capital adequacy is strong and its risk position has remained stable. 

The Energia segment’s objective is to channel assets under management to renewable energy production projects and to other energy projects supporting sustainability. The goal is to internationalize and expand the Energia segment’s business operations considerably, which naturally increase risks relating to the growth and internationalization of the operations. The Energia segment’s earnings are impacted by its success in finding suitable projects, its ability to identify all risks related to renewable energy’s international development, construction, financing and operations, and its success in the internationalization of its operations. The Energia segment’s earnings are also affected by the success of its own investments in energy projects.

The most significant risks of the Other Operations consist primarily of private investments and financing granted by Taaleri Investments Ltd as well as of credit risks related to Taaleri Plc’s granted loans and receivables from credit institutions. The Other Operations’ returns consist of the fair value changes in investments and of profits/losses gained in connection with the sales of its investments. The earnings and result of the Other Operations may thus vary significantly between periods under review.

Taaleri falls within the sphere of regulation of large customer risks defined in the EU Capital Requirements Regulation. At the end of the January-December 2019 review period, Taaleri’s largest single customer risk was 21.2 (22.3) per cent of the Group’s own funds and the liabilities of any (single) customer entity did not exceed the 25 per cent limit set by law.

Capital adequacy management

Taaleri Group forms a financing and insurance conglomerate, according to the Act on the Supervision of Financial and Insurance Conglomerates (RaVa) (2004/699).

As a RaVa conglomerate, Taaleri Group discloses its own funds and capital adequacy in accordance with the capital adequacy regulations for financial and insurance conglomerates. Taaleri RaVa conglomerate’s own funds amounted to EUR 125.1 (105,1) million, with the minimum requirement being EUR 60.3 (56.5) million. The conglomerate’s capital adequacy is EUR 64.8 (48.6) million and the capital adequacy ratio is 207.4 (186.0) per cent, with the minimum requirement being 100 per cent.

Within the Taaleri Group, the regulatory capital according to Solvency II is determined and reported not only for Garantia Insurance Company Ltd. but also for Taaleri Plc as a part of the RaVa conglomerate. The total solvency capital requirement (SCR) of the parent company Taaleri Plc and the subsidiary Garantia Insurance Company Ltd was EUR 29.5 (27.5) million. The Financial Supervisory Authority confirmed in June 2019 a capital add-on totalling EUR 19.8 (17.8) million. The total solvency requirement was hence EUR 49.3 (45.3) million for the insurance busi-ness. The add-on is implemented because the risk profile of Garantia’s non-life underwriting risk module differs from the underlying assumptions in the standard formula for the solvency capital requirement calculation. 

Taaleri’s own funds fully comprise its own unrestricted Tier 1 basic funds and a EUR 15 million Tier 2 bond issued by Taaleri Plc, in October 2019. The loan has a ten-year maturity and a fixed coupon of 5 per cent until 18 October 2024, and thereafter a five-year average interest rate swap (EUR 5-year mid-swap) plus 5.33 percentage points.
 

Capital adequacy of RaVa conglomerate, EUR thousand 31 Dec. 2019 31 Dec. 2018
Shareholders’ equity of the Taaleri Group 125,729 122,381
Goodwill and other intangible assets -6,533 -7,164
Non-controlling interests 182 -1,661
Planned distribution of profit -9,072 -8,505
Tier 2 Capital 14,825 -
Conglomerate’s own funds, total 125,130 105,051
     
Financing business’ requirement for own funds 11,014 11,156
Insurance business’ requirement for own funds 49,307 45,327
Minimum amount of own funds of the Conglomerate total 60,321 56,483
     
Conglomerate’s capital adequacy 64,809 48 567
Conglomerate’s capital adequacy, ratio 207,4% 186.0%

Capital adequacy according to the Act on Credit Institutions and the EU Capital Requirements Regulation (Basel III)

Within the Taaleri Group, the regulatory capital according to the Act on Credit Institutions (610/2014) and the EU Capital Requirements Regulation (CRR) (No 575/2013 of the European Parliament and of the Council) is determined and disclosed to the supervised parties operating in the Financing sector Taaleri applies the standardized approach in the regulatory capital calculation of the credit risk capital requirement.
Taaleri Group’s target level for the own funds of the Financing sector is 1.3 times the internal risk-based capital requirement, calculated on the basis of the pillar 1 minimum capital requirement and additional pillar 2 risk-based capital requirement. 

The Finnish Financial Supervisory Authority has on 31 January 2019 given Taaleri Plc permission pursuant to Article 49 (1) of the EU Capital Requirements Regulation (EU) 575/2013 (CRR). The permission entitles Taaleri Plc to not deduct the investments in the own funds instruments of Garantia Insurance Company Limited from the consol-idated common equity Tier 1 capital (CET1) of the investment services firm. Instead of deduction, investments in the insurance company should be risk-weighted in accordance with CRR Article 49 (4). The permit is for a fixed term and is valid until 31 December 2020.

With the permission Garantia’s acquisition expense of EUR 60.4 million can be left undeducted. The impact on the result accumulated by the insurance company investment is not included in the consolidated Common Equity Tier 1 of the investment service company. Equity investments include the Group’s internal insurance company investment of EUR 60.4 million with a risk-weight of 100 per cent. If the CRR 49 permission were not applied and using the alternative calculation method where the insurance company investment are deducted from the Common Equity Tier 1 and including the result of the review period, the consolidated Common Equity Tier 1 of the investment service company would be EUR 18.6 million on 30 December 2019.

Taaleri’s financing sector’s Common Equity Tier 1 with the CRR 49 permission is EUR 70.9 (57.1) million and equity EUR 85.7 (57.1) million, of which the profit of January-December 2019, EUR 4.3 (21.3) million, is deducted. The risk-weighted commitments were EUR 242.6 (229.6) million, of which the share of credit risk was EUR 156.4 (150.0) million and the share of operational risk EUR 86.2 (79.6) million according to the standardized approach. The Financing sector’s capital adequacy ratio was 35.3 (24.9) per cent.
 

Financing sector’s capital adequacy, EUR thousand        (with the CRR 49 permission) 31 Dec. 2019 31 Dec. 2018
Common Equity Tier 1 before deductions 81,228 86,321
Deductions from the Common Equity Tier 1    
Goodwill and intangible assets -6,184 -6,228
Non-controlling interests 182 -1,662
Profit of the review period -4,330 -21,318
Common Equity Tier 1 (CET1) 70,896 57 113
Additional Tier 1 before deductions -
Deductions from the Additional Tier 1 -
Additional Tier 1 (AT1)
Tier 1 capital (T1 = CET1 + AT1) 70,896 57,113
Tier 2 capital before deductions 14,825 -
Deductions from the Tier 2 capital -
Tier 2 capital (T2) 14,825 -
Total capital (TC = T1 + T2) 85,720 57,113
Total risk-weighted commitments (total risk) 242,584 229,622
– of which the share of credit risk 156,380 150,023
   - of which insurance company holdings 60,350 60,350
– of which the share of operational risk 86,204 79,599
– of which the share of other risks - -
Common Equity Tier 1 (CET1) in relation to the amount of total risk (%) 29.2% 24.9%
Tier 1 capital (T1) in relation to the amount of total risk (%) 29.2% 24.9%
Total capital (TC) in relation to the amount of total risk (%) 35,3% 24.9%

Solvency according to the Insurance Companies Act (Solvency II)

Garantia continues to have strong capital adequacy. Garantia’s basic own funds at the end of December 2019 were EUR 112.7 (103.3) million. The solvency capital requirement including the capital add-on was EUR 48.6 (44.2). Solvency ratio, or the ratio of basic own funds to the solvency capital requirement, including the capital add-on was 231.8 (233.4) per cent. The increase in basic own funds was mainly a result of the growth in the fair value of investment assets. Correspondingly, the increase in the value of investment assets increased the Solvency Capital Requirement for market risk.

Garantia’s own funds are formed in full of unrestricted Tier 1 basic own funds. Garantia does not apply the transition arrangements in defining its basic own funds and Garantia’s own funds do not include items classified as ancillary own funds. Garantia does not use the matching adjustment or the volatility adjustment in the calculation of technical provisions.. Garantia applies the standard formula for the Solvency Capital Requirement calculation. Garantia does not use the simplified calculation in the standard formula’s risk modules or sub-modules, or company-specific parameters instead of the parameters of the standard formula. Garantia does not apply the transition arrangements of technical provisions or market risk calculations. 

Garantia's solvency capital requirement has included a capital-add on set by the Financial Supervisory Authority as of 30 June 2018. The Financial Supervisory Authority assesses the amount of the capital add-on at least once a year. On 17 June 2019, the Financial Supervisory Authority reviewed its decision to increase the capital add-on; the add-on was increased to EUR 19.8 (30 June 2018: 17.8) million. The updated increase was included in the Company's Solvency Capital Requirement as of 30 June 2019 and remains in effect until further notice.

In its decision concerning  the capital requirement, the Financial Supervisory Authority states that the risk profile of Garantia's non-life insurance risk section differs from the basic assumptions of the Solvency Capital Requirement calculated using the standard formula. In addition, the Finnish Financial Supervisory Authority notes that the requirement to use an internal model is not appropriate for Garantia.

Based on the Insurance Companies Act that came into force on 1 January 2016, the Solvency II capital adequacy regulations do not fall within the sphere of statutory auditing. 
 

Compliance

The Group compliance officer is responsible for the compliance function. The Group’s compliance function consists of the Group compliance officer, compliance & risk managers and a compliance task group, which includes the Group compliance officer and the persons responsible for compliance-related issues in the Group companies.

The tasks of the Group Compliance function are to:

  • monitor compliance with regulations and internal guidelines
  • advise the management team and the Board and other personnel on compliance with regulatory and internal guidelines
  • assist Taaleri Plc’s Board of Directors, the management team and other relevant bodies in regulatory compliance issues and related compliance risk management by keeping heads of businesses aware of the essential changes in regulations and the potential impact on business
  • monitor and regularly evaluate the adequacy and effectiveness of the Group’s measures and procedures to ensure compliance
  • be responsible for management of anti-money laundering and AML training in the Group

Internal Audit

Internal Audit is an assurance function independent of the operational functions of the Taaleri Group companies. The Internal Audit function is set up by the Board of Directors and operates under the authority of the Group CEO. Taaleri Group has outsourced the practical implementation of the Group’s internal audit to an external service provider.

Internal Audit is an independent, objective assurance and consulting activity designed to check the adequacy, effectiveness and efficiency of internal control. Internal Audit supports the Group’s senior and operational management (Board, CEO, line managers) in managing and supervising operations.

Auditor

The company has one auditor that must be an audit firm defined in the Auditing Act. The auditor is elected at the Annual General Meeting for a term of office which ends at the end of the first Annual General Meeting following the election.

Authorised public accountants Ernst & Young Oy were elected as auditor at Taaleri Plc’s Annual General Meeting held on 20 March 2019. Ulla Nykky APA was elected as the appointed auditor.