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. 

risk management and risk position

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 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 2020 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 operations, and the market risk regarding investment assets. Garantia’s capital adequacy is strong and its risk position has remained stable. 

The Energy 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 Energy segment’s business operations considerably, which naturally increase risks relating to the growth and internationalization of the operations. The Energy 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 Energy 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 Sijoitus Oy 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 Regu-lation. At the end of the January-December 2020 review period, Taaleri’s largest single customer risk was 19.8 (21.2) 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 of taaleri

Capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates

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 Tier 1 capital amounted EUR 118.5 (110.3) million, Tier 2 capital amounted EUR 14.8 (14.8) million and own funds amounted EUR 133.3 (125.1) million, with the minimum requirement being EUR 61.7 (60.3) million. The conglomerate’s capital adequacy was EUR 71.6 (64.8) million and the capital adequacy ratio was 216.2 (207.4) 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 34.6 (29.5) million. The Financial Supervisory Authority confirmed in June 2020 a capital add-on totalling EUR 15.3 (19.8) million. The total solvency requirement was hence EUR 49.9 (49.3) million for the insurance business. 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.

Capital adequacy of RaVa conglomerate, EUR thousand 31 Dec. 2020 31 Dec. 2019
Shareholders’ equity of the Taaleri Group 133,209 125,729
Goodwill and other intangible assets -6,778 -6,533
Non-controlling interests 1,134 182
Planned distribution of profit -9,072 -9,072*
Tier 2 Capital 14,839 14,825
Conglomerate’s own funds, total 133,332 125,130
   
Financing business’ requirement for own funds 11,783 11,014
Insurance business’ requirement for own funds 49,900 49,307
Minimum amount of own funds of the Conglomerate total 61,683 60,321
Conglomerate’s capital adequacy 71,649 64,809
Conglomerate’s capital adequacy, ratio 216.2% 207,4%
* The Board of Director’s dividend proposal for 2019, of which the Board of Directors has decided on 18 February 2021 not to distribute EUR 4.5 million

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 deter-mined 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 4 June 2020 decided to prolong the permission to leave the insurance company holdings undeducted from the common equity Tier 1 capital (CET1) given to Taaleri Plc, pur-suant to Article 49 (1) of the EU Capital Requirements Regulation (EU) 575/2013 (CRR), until 25 June 2021. The previous fixed term permit was valid until 31 December 2020 and was granted to Taaleri Plc 31 January 2019. The permission granted by the Finnish Financial Supervision Authority on 31 January 2019 was related to the reform of the capital requirements framework for investment firms that was pending in the European Union at that time and the understanding of the date of application of that new framework. The new framework was originally scheduled to come into effect on 31 December 2020, but the date has since been confirmed to 26 June 2021.

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 invest-ment 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 is deducted from the Common Equi-ty Tier 1 and excluding the result of the financial period, were applied, the consolidated Common Equity Tier 1 of the investment service company would be EUR 19.0 million and equity EUR 33.8 million on 31 December 2020.

Taaleri’s financing sector’s Common Equity Tier 1 with the CRR 49 permission is EUR 71.1 (70.9) million and equi-ty EUR 86.0 (85.7) million, of which the profit of January-December 2020, EUR 3.5 (4.3) million, is deducted. The risk-weighted commitments were EUR 226.9 (242.6) million, of which the share of credit risk was EUR 149.0 (156.4) million and the share of operational risk EUR 77.9 (86.2) million according to the standardized approach. The Financing sector’s Tier 1 Capital adequacy ratio was 31.8 (29.2) capital adequacy ratio was 38.4 (35.3) per cent.

Financing sector’s capital adequacy, EUR thousand        (with the CRR 49 permission) 31 Dec. 2020 31 Dec. 2019
Common Equity Tier 1 before deductions 79,929 81,228
Deductions from the Common Equity Tier 1  
Goodwill and intangible assets -6,428 -6,184
Non-controlling interests 1,134 182
Profit of the review period -3,486 -4,330
Common Equity Tier 1 (CET1) 71,149 70,896
Additional Tier 1 before deductions - -
Tier 1 capital (T1 = CET1 + AT1) 71,149 70,896
Tier 2 capital before deductions 14,839 14,825
Deductions from the Tier 2 capital - -
Tier 2 capital (T2) 14,839 14,825
Total capital (TC = T1 + T2) 85,988 85,720
Total risk-weighted commitments (total risk) 226,872 242,584
– of which the share of credit risk 148,951 156,380
   - of which insurance company holdings 60,350 60,350
– of which the share of operational risk 77,921 86,204
– of which the share of other risks - -
Common Equity Tier 1 (CET1) in relation to the amount of total risk (%) 31.8% 29.2%
Tier 1 capital (T1) in relation to the amount of total risk (%) 31.8% 29.2%
Total capital (TC) in relation to the amount of total risk (%) 38.4% 35,3%

Solvency according to the Insurance Companies Act (Solvency II)

Garantia’s solvency remained near the level seen in the previous year. The company’s basic own funds were EUR 114.1 (112.7) million at the end of the financial year, and solvency capital requirement was 49.7 (48.6) million. Solvency ratio, or the ratio of basic own funds to the solvency capital requirement, was 229.4 (231.8) percent.

Basic own funds grew in accordance with the profit for the financial year. Basic own funds include foreseeable dividends as a deduction, and these foreseeable dividends grew compared to the previous year. The growth in the solvency capital requirement was due to the growth in capital requirements for non-life underwriting risk and market risk. The growth in the capital requirement for underwriting risk was to a significant effect a consequence of changes in the standard parameters of Solvency II, used in solvency calculations, that came into effect on 1 January 2020. Had these parameters been already applied on 31 December 2019, Garantia’s solvency ratio would have been 219.3 per cent at the end of financial year 2019.

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 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.

As of 30 June 2018, Garantia's solvency capital requirement has included a capital add-on set by the Financial Supervisory Authority. The Financial Supervisory Authority assesses the amount of the capital add-on at least once a year.  Most recently, on 29 May 2020, the Financial Supervisory Authority reviewed its decision on the capital add-on; the capital add-on was set to EUR 15.3 (17 June 2019: 19.8) million. The updated capital add-on has been included in the Company's Solvency Capital Requirement as of 30 June 2020. When making its decision on the capital add-on in the past year, the Financial Supervisory Authority for the first time took in to account the capital requirement calculated as per Garantia’s internal economic capital model.

In its decision concerning the capital add-on, the Financial Supervisory Authority states that the risk profile of Garantia's non-life underwriting risk section differs from the basic assumptions of the Solvency Capital Requirement standard formula by more than 15 per cent, and hence the prerequisites for the capital add-on are still fulfilled. According to the assessment of the Financial Services Authority, no significant changes have occurred in the risk profile of the company since the previous decision, made on 17 June 2019. In addition, the Finnish Financial Supervisory Authority repeats its earlier view that the requirement to use an internal model is not appropriate for Garantia.

According to the Insurance Companies Act, Solvency II capital adequacy regulations do not fall within the scope 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 25 March 2021. Ulla Nykky APA was elected as the appointed auditor.