Legal structure of the amalgamation of the cooperative banks and the OP Financial Group

Amalgamation of OP Financial Group member cooperative banks, and OP Financial Group

The amalgamation of OP Financial Group member cooperative banks is formed by OP Cooperative (central cooperative), companies belonging to its consolidation group, the central cooperative’s member credit entities and companies belonging to their consolidation groups, and credit institutions, financial institutions and service companies in which the abovementioned entities together hold more than half of the total votes.

OP Financial Group is comprised of the amalgamation of the member cooperative banks and those non-amalgamation of which entities belonging to the amalgamation hold more than half of the total votes. The extent of OP Financial Group differs from that of the amalgamation of the member cooperative banks in that OP Financial Group subsumes companies other than credit institutions, financial institutions or service companies. The most important of these are the insurance companies with which the amalgamation forms a financial and insurance conglomerate.

Control, risk management and capital adequacy of the amalgamation of cooperative banks

Pursuant to the Act on the Amalgamation of Deposit Banks, the consolidated capital base and liquidity of the companies within the amalgamation are controlled on a consolidated basis. The central cooperative is under an obligation to supervise its member credit institutions, issue instructions to them on risk management, good corporate governance and internal control to secure liquidity and capital adequacy, as well as instructions on compliance with standardised accounting policies in the preparation of the consolidated financial statements. In the manner as specified in its Bylaws, the central cooperative may also confirm general principles to be followed by its member credit institutions in operations relevant to their amalgamation.


However, the obligation to issue guidelines and exercise supervision does not authorise the central cooperative to dictate the course of the member credit institutions’ business operations. Each member credit institution carries on its business independently within the scope of its own resources and guidelines provided by the central cooperative.

A company belonging to the amalgamation may not, in the course of its operations, take any risk of such magnitude that it poses a substantial danger to the combined capital base or liquidity of the companies within the amalgamation. The central cooperative must by law pursue good corporate governance that enables effective risk management and have in place adequate internal control and risk management systems in view of the performance of the amalgamation. The risk management principles applied to the amalgamation of the cooperative banks are included in OP Financial Group’s risk management and capital adequacy management principles described in greater detail in other parts of the Report by the Executive Board and OP Financial Group’s IFRS Financial Statements.

The amalgamation must fulfil the legal requirements concerning its financial position. The amalgamation must have the minimum capital base specified in Chapter 10, Section 1 of the Act on Credit Institutions.

Member credit institution’s capital adequacy and its supervision

In accordance with the Act on the Amalgamation of Deposit Banks, the supervisor may give the central cooperative permission to decide on exceptions to its member credit institutions related to the capital base amount and capital requirements, custom risks and liquidity and the qualitative management of risks.

The central cooperative may not make an exception to a member credit institution that has to a significant extent or repeatedly failed to comply with guidelines issued by the central cooperative pursuant to Section 17 of the Act on Credit Institutions or the member credit institution's obligations prescribed in Section 23 or issued pursuant to said supervisor's regulation. Permission of this kind may be given for a maximum period of three years. The central cooperative has enabled exceptions, authorised by the supervisor, with regard to member credit institutions' customer exposure, liquidity and qualitative management of risks.

A member credit institution is under no obligation to publish an interim report in accordance with Chapter 12, Section 12 of the Act on Credit Institutions. Member credit institutions are under no obligation to publish capital adequacy information (Pillar III disclosures) in their entirety; such information is disclosed on the amalgamation of OP member cooperative banks.

Joining the amalgamation of the cooperative banks and withdrawal from its membership

Central cooperative members may include credit institutions if their bylaws or articles of association correspond to what is prescribed by the Act on the Amalgamation of Deposit Banks and if their bylaws or articles of association have been approved by the central cooperative. The central cooperative’s Supervisory Board decides on admitting members.

A member credit institution has the right to withdraw from its membership of the central cooperative. Even if a member credit institution withdraws from membership, the aggregate amount of capital resources of companies belonging to the amalgamation must be maintained at the level as required by the Act on the Amalgamation of Deposit Banks.

A member credit institution may also be expelled from membership of the central cooperative in accordance with the Co-operatives Act. A member credit institution may also be expelled if it has not complied with instructions issued by the central cooperative by virtue of Section 17 of the Act on the Amalgamation of Deposit Banks in a way that significantly jeopardises liquidity or capital adequacy management, the application of the standardised principles related to the preparation of financial statements or the supervision of adherence to them within the amalgamation. Expulsion is also possible if a member credit institution is in material breach of the amalgamation’s general operating principles approved by the central cooperative.

The provisions of the Act on the Amalgamation of Deposit Banks governing payment liability of a member credit institution shall also apply to a former member credit institution which has withdrawn or been expelled from the central cooperative, if less than five years have passed from the end of the calendar year of the member credit institution’s withdrawal or expulsion from the central cooperative when a demand regarding payment liability is presented to the member credit institution.

OP Financial Group's financial statements and audit

According to the Act on the Amalgamation of Deposit Banks, OP Financial Group’s financial statements must be prepared in compliance with the International Financial Reporting Standards, as referred to in the Accounting Act. The Financial Supervisory Authority has issued more detailed regulations on the preparation of OP-Pohjola Group’s financial statements. The accounting policies applied are presented in the notes to OP Financial Group’s financial statements.

The central cooperative has a statutory obligation to issue instructions to the member credit institutions on observing uniform accounting policies in preparing the OP Financial Group’s financial statements. The member credit institutions are obliged to provide the central cooperative with the information necessary for the consolidation of OP Financial Group’s financial statements. The central cooperative’s auditors are authorised to obtain a copy of the documents relating to a member credit institution’s audit for auditing OP Financial Group’s financial statements.

The central cooperative’s auditors audit OP Financial Group’s financial statements observing, as appropriate, the provisions of the Act on Credit Institutions. The financial statements are presented and distributed to the Annual Cooperative Meeting of the central cooperative.

Supervision of the amalgamation of the cooperative banks

The central cooperative and the amalgamation of the cooperative banks is supervised by the European Central Bank (ECB), while the central cooperative’s member credit institutions are supervised by the ECB and the central cooperative.

The central cooperative exercises oversight to ensure that the companies within the amalgamation operate in compliance with the laws, decrees and regulations issued by the relevant authorities governing financial markets, and with their own bylaws or articles of associations and the instructions issued by the central cooperative by virtue of Section 17 of the Act on the Amalgamation of Deposit Banks. Furthermore, the central cooperative supervises the financial position of the companies within the amalgamation.

The ECB oversees the central cooperative so that it controls and supervises the member credit institutions in accordance with the provisions of the Act on the Amalgamation of Deposit Banks and that the companies within the amalgamation fulfil their legal requirements.

The audit of the central cooperative and its member credit institutions is carried out by Internal Audit, which reports to the central cooperative’s Executive Chairman. It is responsible for the internal audit of the central cooperative’s member credit institutions and companies belonging to their consolidation groups and the central cooperative and its subsidiaries.

Auditing performed by OP Financial Group’s Audit is an independent and objective assessment, assurance and consulting activity designed to add value to OP Financial Group and improve its operations. Internal Audit helps OP Financial Group to reach its objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, supervision and governance processes, with the focus on the identification of risk factors and the assessment of the performance of internal control. In its reports, Internal Audit issues recommendations for remedying any defects discovered.

Audits are carried out by adhering to international standards for internal audits, and to good auditing practices.

Central cooperative’s liability for debt and joint and several liability of member credit institutions

As a support measure referred to in the Act on the Amalgamation of Deposit Banks, the central cooperative is liable to pay any of its member credit institutions an amount that is necessary to prevent the credit institution from being placed in liquidation. The central cooperative is liable for the debts of a member credit institution which cannot be paid using the member credit institution’s capital.

Each member credit institution is liable to pay a proportion of the amount which the central cooperative has paid to either another member credit institution as part of support action or to a creditor of such member credit institution in payment of an amount overdue which the creditor has not received from the member credit institution. Furthermore, in the case of the central cooperative’s default, a member credit institution has unlimited refinancing liability for the central cooperative’s debts as referred to in the Co-operatives Act.

Each member credit institution’s liability for the amount the central cooperative has paid to the creditor on behalf of a member credit institution is divided between the member credit institutions in proportion to their last adopted balance sheets. The combined annual amount collected from each member credit institution in order to prevent liquidation of one of the member credit institutions may in each financial year account for a maximum of five thousandths of the last adopted balance sheet of each member credit institution.

Protection afforded by the Deposit Guarantee Fund and the Investors’ Compensation Fund

According to the law governing the Deposit Guarantee Fund, the deposit banks belonging to the amalgamation of the cooperative banks are considered to constitute a single bank in respect of deposit insurance. The Deposit Guarantee Fund reimburses a maximum total of 100,000 euros to an individual account holder who has receivables from deposit banks belonging to the amalgamation of cooperative banks.

Under the law governing the Investors’ Compensation Fund, the amalgamation of the cooperative banks is also considered to constitute a single credit institution in respect of investors’ compensation. The Investors’ Compensation Fund's assets may be used to compensate an investor’s receivables from companies belonging to the amalgamation of the cooperative banks up to a total maximum of 20,000 euros.

A new authority founded in 2015, the Financial Stability Board, manages the Financial Stability Fund outside the government budget. The Fund consists of a resolution fund financed through stability contributions and a deposit guarantee fund financed through deposit guarantee contributions.


Financial and insurance conglomerate

OP Financial Group forms a financial and insurance conglomerate as defined in the Act on the Supervision of Financial and Insurance Conglomerates. The amalgamation’s central cooperative operates as the company heading the amalgamation pursuant to Section 3 of said Act.

The Act stipulates a specific capital adequacy requirement for a financial and insurance conglomerate. OP Financial Group’s capital adequacy is stated as the amount of its capital base in excess of the minimum capital requirement and as a ratio of the total capital base to the minimum required capital base.

The Act also stipulates the maximum limits for customer risks of a financial and insurance conglomerate. Moreover, Section 21 of the Act on the Amalgamation of Deposit Banks governing the amalgamation’s customer registers applies to the financial and insurance conglomerate formed by OP Financial Group.

The set of norms governing financial statements under the Act on the Supervision of Financial and Insurance Conglomerates does not apply to OP Financial Group on the basis of Section 30 of the Act, because the Group prepares its financial statements in compliance with IFRS.