Corporate Governance
Directors' Remuneration
Details of the total remuneration of the Directors in office during 2012 and 2011 are shown in note 62 on page 316 of the 2012 Annual Financial Report.
Relations with Shareholders
The Group has a number of procedures in place to allow its shareholders and other stakeholders to stay informed about matters affecting their interests. In addition to this Annual Financial Report, which is only sent to those shareholders who request it, the following communication tools are used by the Group.
Summary Shareholders' Report
The Shareholders Report ("the Report") is a summary version of AIB's main Annual Financial Report. This Report, which covers AIB's performance in the previous year, is sent to shareholders who have opted to receive it instead of the main Annual Financial Report. This summary report does not form part of the Annual Financial Report or Form 20-F and is referred to for reference purposes only.
Website
The website, www.aibgroup.com, contains, for the previous five years, the Annual Financial Report, the Interim Report/Half-yearly Financial Report, and the Annual Financial Report on Form 20-F. The Company's presentation to fund managers and analysts of annual and interim financial results are available on the internet, and may be accessed on the Company's website: www.aibgroup.com. Since 2009, the Annual Financial Report and the Annual Report on Form 20-F have been combined in the form of this Annual Financial Report. None of the information on the website is incorporated in, or otherwise forms part of, this Annual Financial Report.
Annual General Meeting
All shareholders are invited to attend the AGM and to participate in the proceedings. At the AGM, it is practice to give a brief update on the Group's performance and developments of interest for the year to date. Separate resolutions are proposed on each separate issue and voting is conducted by way of poll. The votes for, against, and withheld, on each resolution, including proxies lodged, are subsequently published on AIB's website. Proxy forms provide the option for shareholders to direct their proxies to withhold their vote. It is usual for all Directors to attend the AGM and to be available to meet shareholders before and after the meeting. The Chairmen of the Board's Committees are available to answer questions about the Committees' activities. A help desk facility is available to shareholders attending. The Company's 2013 AGM is scheduled to be held on 20 June 2013, at the Company's Head Office at Bankcentre, Ballsbridge, Dublin 4, and it is intended that the Notice of the Meeting will be posted to shareholders at least 21 clear days before the meeting, in line with the requirements of Irish Company law.
Account and Auditing
Going Concern
The Group's activities are subject to risk factors and uncertainties as set out on pages 58 to 64 of the 2012 Annual Financial Report.
Notwithstanding these risk factors and uncertainties, the Directors have prepared the financial statements on a going concern basis. In making its assessment of the Group's ability to continue as a going concern, the Board of Directors have taken into consideration the significant economic and market risks and uncertainties that continue to impact the Group. These include the ability to access Eurosystem funding and Central Bank liquidity facilities to meet liquidity requirements.
In addition, the Directors have considered the current level of capital and the potential requirement for capital in the period of assessment.
Furthermore, the Directors considered the risks and uncertainties impacting the Eurozone and have taken into account the developments taken at EU level which saw a marked easing of the eurozone sovereign debt crisis and improvements in conditions in eurozone financial markets during the second half of 2012.
Internal Controls
The Directors acknowledge that they are responsible for the Group's system of internal control. They acknowledge that systems of internal control are designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss.
The Group's system of internal control is based on the following:
Governance and Oversight
-AIB Board in place and has ultimate responsibility for the governance of all risk taking activity across the Group. The Board is supported by a number of subcommittees including a Board Risk Committee, an Audit Committee, a Remuneration Committee and a Nomination and Corporate Governance Committee.
-The Board Risk Committee evaluates material risks and risk management across the Group and risk disclosures made by the Group.
-At the executive level, a Leadership Team is in place with responsibility for establishing business strategy, risk appetite, enterprise risk management and control.
-The Executive Risk Committee which is a subcommittee of the Leadership Team reviews the effectiveness and application of the Group's risk frameworks and policies, risk profile, risk concentrations and all breaches of Board approved risk appetite and limits.
-The Group Audit Committee of the Board reviews various aspects of control, including the design and operating effectiveness of internal control over the financial reporting framework in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, the Group's statutory accounts and other published financial statements and information, and ensures that no restrictions are placed on the scope of the statutory audit or the independence of the Internal Audit and Regulatory Compliance functions.
-There is involvement at all meetings of the Audit and Board Risk Committees by the Chief Financial Officer, Chief Risk Officer and Group Internal Auditor.
-The Group operates a three lines of defence framework in the delineation of accountabilities for risk governance.
-AIB's remuneration policies are set and governed by the Remuneration Committee whose purpose, duties and membership are to ensure that remuneration policies and practices are consistent with and promote effective risk management.
-There is an independent Group Internal Audit function which is responsible for independently assessing the effectiveness of the Group's corporate governance, risk management and internal controls and which reports directly to the Chair of the Audit Committee.
-Risk management committees are in place with approved terms of reference ("ToR") that operate under delegated authority from the Board and Executive level.
Risk Management
-A Board approved Risk Appetite Statement ("RAS") sets the limits of risk appetite associated with the Group's strategic objectives. The RAS is reviewed at least annually by the Board and more frequently if required. Risk policies and procedures are updated where appropriate to reflect the limits of the risk appetite.
-AIB's approach to managing risk and compliance matters are set out in a suite of policy documents that forms part of the AIB policy framework which are individually aligned with the RAS and are Board approved.
-AIB has adopted an Enterprise Risk Management approach to identifying, assessing and managing risks which builds on the three lines of defence governance framework and is supported by a risk management framework and policy architecture which are currently under development.
-The Group's risk management framework is also supported by the underlying Group Risk committees comprising Asset and Liability Committee ("ALCo"), Credit Risk Committee ("CRC"), Operations Risk Committee ("ORC") and the Compliance Committee. Each of these committees is responsible for identifying actions to support robust risk management in line with the Group's risk appetite.
-A comprehensive annual budgeting and financial reporting system is in place, which incorporates clearly-defined and communicated common accounting policies and financial control procedures, including those relating to authorisation limits, capital expenditure and investment procedures.
-Roles and responsibilities for management and staff are outlined via a clearly-defined organisational management structure, with defined lines of authority and accountability.
-AIB's Internal Capital Adequacy Assessment Process ("ICAAP") has been developed which determines the adequacy and appropriateness of capital levels based on the Group's identification and assessment of the material risks to which it is exposed.
Risk Identification
-Key internal and external risks are identified and assessed throughout AIB through a combination of top-down and bottom-up risk assessment processes. The key risks to the organisation are defined within the AIB risk universe and are continually updated reflecting the current operating and risk environment.
-The Group's risk identification and assessment framework is supported by a framework of stress testing, scenario analysis and sensitivity analysis. The Group undertakes a regular program of stress testing across all of the material risks to meet internal and regulatory requirements.
Risk Control & Monitoring
-There is a centralised risk (and compliance) control function, headed by the Chief Risk Officer ("CRO") who is responsible for ensuring that risks are identified, measured, monitored and reported on, and for reporting on risk mitigation actions.
-The Risk function is responsible for establishing and embedding risk management frameworks, ensuring that material risk policies are reviewed, and reporting on adherence to risk limits as set by the Board of Directors.
-The Group's risk profile is measured against its risk appetite on a monthly basis and reported to the Executive Risk Committee and Board Risk Committee via the monthly CRO report. Material breaches of risk appetite are escalated to the Board and the Central Bank of Ireland ("the Central Bank").
-The centralised Credit function is headed by a Chief Credit Officer who reports to the CRO.
-There is an independent Compliance function which provides advisory services to the Group and which monitors and reports on prudential, conduct of business and financial crime compliance and forthcoming regulations across the Group, and on management's attention to compliance matters.
-AIB staff who perform Pre-Approved Controlled functions/Controlled functions meet the required standards as outlined in AIB's Fitness and Probity programme.
-There is an independent Group Internal Audit function which is responsible for independently assessing the effectiveness of the Group's corporate governance, risk management and internal controls and which reports directly to the Group Audit Committee.
Taking the above into account, the Directors are satisfied:
-that there is a clear organisational structure which provides effective oversight of the activities of the Group;
-that processes are in place to identify, manage, monitor and report on risks;
-that adequate internal control mechanisms, including sound administrative and accounting procedures, IT systems and controls are in place, which are subject to on-going improvement initiatives to further strengthen such systems;
-that the remuneration policies and practices are consistent with and promote sound and effective risk management;
-that the system of governance is subject to regular internal review.
Additional requirements in the United States
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the US Exchange Act). Management has assessed the effectiveness of the Group's internal control over financial reporting as of 31 December 2012, based on the criteria set forth by the US Committee of Sponsoring Organisations of the Treadway Commission in their publication 'Internal Control - Integrated Framework'. Based on this assessment, management believes that, as of 31 December 2012, the Group's internal control over financial reporting is effective. There have been no changes in the Group's internal control over financial reporting during 2012 that has materially affected or is reasonably likely to materially affect the Group's internal control over financial reporting.
In addition to the need for such internal controls over financial reporting, the SEC has adopted somewhat broader requirements designed to ensure that reporting companies, such as AIB, have adequate 'disclosure controls and procedures' in place. As of 31 December 2012, the Group carried out an evaluation, under the supervision of and with the participation of the Group's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Group's disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon, and as of the date of the Group's evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in all material respects to ensure that information required to be disclosed in the reports which the Group files and submits under the US Exchange Act is recorded, processed, summarised and reported as and when required.
Code of Conduct
In June 2012 the Group adopted a Code of Conduct that applies to all employees. This replaced the previous code of business ethics. A copy of the Code is available on the Group website at www.aibgroup.com/investorrelations. The Code of Conduct sets out the key standards for behaviour and conduct that apply to all employees, and includes particular requirements regarding responsibilities of management for ensuring that business and support activities are carried out to the highest standards of behaviour. The application of the Code of Conduct is underpinned by policies, practices and training which are designed to ensure that the Code is understood and that all employees act in accordance with it.
As part of the Code implementation, AIB encourages its employees to raise any concerns of wrongdoing through a number of channels, both internal and external. One such channel includes a confidential external helpline. Employees are assured that if they raise a concern in good faith, AIB will not tolerate any victimisation or unfair treatment of the employee as a result.
The Code of Conduct and supporting policies are subject to annual review and update to the Board.
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