According to the Swedish Companies Act, the Board's overall task is to manage the company's business on behalf of its owners. The Board of a universal bank such as Handelsbanken must also comply with a large number of industrial regulations. Central among these is the Swedish Banking and Financing Business Act (2004:297). In addition, there is specific legislation for operations such as securities and insurance. The commercial legislation is supplemented by regulations from the Swedish Financial Supervisory Authority. Many of these regulations include instructions addressed to the Board of the Bank.
Banking legislation requires the Board to ensure that certain general operating regulations on financial strength, liquidity, risk management, transparency and soundness are fulfilled.
Financial strength and liquidity A bank's operations must be conducted in such a way that its ability to fulfil its obligations is not jeopardised. Risks are inherent in all operations, but these risks must be adapted to the size of the buffer capital. Similarly, sufficient liquidity is vital for the Bank to also fulfil its obligations in the short term, and not risk incurring temporary payment problems. Good liquidity requires advanced liquidity planning and tight control of payment flows.
The specific implications of the regulations on financial strength and liquidity are set out in the more detailed provisions of other legislation, including the regulations on capital adequacy. As of 1 February 2007, certain new capital adequacy regulations apply (Basel II), which place greater focus on the responsibility of the Board for total capital requirements and requirements for transparency.
Risk management – internal control A bank must have systems adapted to its operations which enable it to identify, measure, govern, internally report and have control over the risks associated with its operations. In particular, the Board must ensure that the different forms of risk such as credit risks, market risks and operating risks, do not as a whole jeopardise the Bank's ability to fulfil its obligations. This requirement can only be met if good internal control exists. Thus, good internal control is part of the risk management and capital assessment functions.
Risk control at Group level is conducted at the Central Risk Control unit within Central Control and Accounting. The responsibility for capital planning rests with the head of the capital unit at Central Control and Accounting. Reporting to the head of Central Control and Accounting, the head of Central Treasury has responsibility for group liquidity and raising capital.
The Bank applies strict methods for risk assessment and risk management to ensure that the risks to which it is exposed are managed within the established framework. The outcome of the company's process for risk assessment and risk management is discussed annually by the Board. Credit risks, operational risks, market risks and liquidity risks are regularly presented to the Board. For a detailed report of Handelsbanken's risk management, see Risk and capital management from the Bank's Annual report 2007.
Financial reporting Internal control for financial reporting is based on the Bank's own control environment (organisation, paths of decision, authority and responsibility) which is documented and communicated in governing documents such as internal policies, guidelines, manuals and codes. Examples of these are the division of work between on the one hand the Board, and on the other hand the group chief executive and the other bodies which the Board establishes, instructions for the right to approve costs, and accounting and reporting instructions. The risks identified concerning financial reporting are managed via the Bank's control structures which are documented in descriptions of processes and internal control.
The Bank has information and communication paths with the aim of achieving completeness and correctness in the financial reports, for example by making the governing documents for financial reporting available and known to the employees concerned. The Bank follows up how the control structures are managed and their efficiency. One of the tools for this is self assessment tests. The company's information and communication channels are also followed up with the intention of ensuring that they are appropriate for their purpose in terms of the financial reporting.
Internal auditing The head of the Central Auditing department is appointed by the Board. The Central Auditing department has some seventy employees, a large number of whom have competence corresponding to public authorised accountants.
The Bank's external auditors evaluate and perform quality control on the work of the internal auditing department.
The internal auditing department's assignment is based on a policy for internal auditing operations established by the Board. Following a co-ordinated risk assessment, the audit work should be planned so that it focuses on examining operations and procedures which are of material importance and/or involve risks. The planned auditing assignments are documented annually in an audit plan which is established by the Board's Audit committee on behalf of the Board. The result of internal audits, the action to be taken and the status of these actions are continually reported the Audit committee.
Transparency A bank's operations must be organised and conducted so that its structure, links with other companies and financial position are clearly visible. The board has overall responsibility for the transparency of the bank’s financial position and organisational structure. The exact implications of the requirement for transparency are, for example, set out in the Swedish legislation for annual accounts.
The Bank's accounts have been prepared in accordance with international financial reporting standards, IFRS, as adopted by the EU. The amendments and restrictions pursuant to the Swedish Annual Accounts Act for Credit Institutions and Securities Companies and the implementation directives issued by the Swedish Financial Supervisory Authority are also applied. The requirement for transparency also entails compliance with stock exchange regulations such as the listing agreement and listing requirements.
Soundness In other respects, too, a credit institution's operations must be pursued in a sound manner. This means that the Bank must maintain a level of quality in its operations, such that the confidence of the market can be upheld. The areas affected by this include the Bank's conduct with respect to its customers.
Guidelines and instructions The basic issues on how expertise is allocated among the Board, the committees of the Board, the chairman, the group chief executive and the internal auditing function are manifested in the Board’s work regulations and its instructions to the group chief executive. The set of instructions that is established every year at the statutory meeting includes credit instructions for the Group, as well as various policies relating to the management of the financial risks associated with the Group's operations.
Every year, the Board sets funding limits and assumes responsibility for the Bank's base prospectus. In addition, every year, the Board establishes a risk mandate relating to market risks, liquidity risks and other risks.
The Board's working instructions state that the chairman should assist the group chief executive in contacts with the Bank's most important relationships, particularly the main owners. The chairman also has overall responsibility for ownership issues relating to shareholdings in the Bank's pension foundation, pension fund and staff foundation.
In the absence of the chairman, in order of seniority on the Board, the vice chairmen of the Board must fulfil the chairman's tasks. In addition, they must assist the chairman as decided by him. In other respects, there is no other division of work for the Board than that involving the committees.
The group chief executive also issues a series of instructions and policy documents, either in response to assignments from the Board, or to fulfil regulatory requirements relating to the Bank's senior management specified by the Swedish Financial Supervisory Authority.
