Internal Controls

Internal Audit and Control

PSB has developed an efficient internal control system to ensure legal and regulatory compliance, accuracy of financial reporting, efficiency of operations, as well as accommodation of rights and legitimate interests of Bank depositors, creditors and other counterparties.

PSB internal control system includes checks designed for timely identification of failures to comply with internal policies and procedures, a system of approval and delegation of authority, checks of compliance with the established limits and subsequent control over elimination of any identified irregularities. The internal control system efficacy is monitored by the Internal Audit and Control Department (IACD), which reports to the Board of Directors.

IACD performs internal audits of the Bank operations, issues recommendations with regard to their improvement, and assists the Bank management in ensuring its efficiency. IACD audits all organizational units in the head office and branches, as well as all transactions.

Anti-Money Laundering

PSB anti-money laundering system is set up in accordance with the provisions of the Russian Federal Law of August 7, 2001 On Combating Money Laundering and Financing of Terrorism, recommendations of the Bank of Russia and recommendations of the Financial Action Task Force (FATF).

The System aims at:

• Excluding the possibility that PSB products and services are used by criminal structures in their money-laundering schemes and operations;
• Minimizing reputational, financial and legal risks for PSB.

The Bank has developed and agreed with the Bank of Russia a set of relevant compliance rules, including:

• Client and beneficiaries identification and scrutiny;
• Ensuring that existing and potential clients are not listed among individuals involved in terrorist activities and financing of terrorism;
• Timely identification of operations subject to mandatory control, as well as operations that fall under doubtful operations, and sharing such information with the Federal Service for Financial Monitoring;
• Continuous anti-money laundering training of bank employees.

PSB has been consistently improving its Know Your Customer policy, paying particular attention to potential client identification, allowing the Bank to manage its reputational risks and counter the use of its products and services in money laundering schemes. In 2008, PSB rejected 672 client applications to open a bank account, in compliance with the existing legislation. Relations with 1,730 clients were terminated based on regular monitoring results.

Short-term objectives include the expansion of the functional capacity of PSB anti-money laundering software, enhanced reliability of transaction identification systems and programs and improved procedure for data exchange between PSB head office and branches.

Monitoring of Financial Market Operations

In accordance with the Russian securities legislation, PSB introduced a system of financial market operations monitoring. The Monitoring Service is headed by the controller qualified in accordance with the applicable criteria of the Federal Service for Financial Markets (FSFM).

The key objectives of the Service include:

• Compliance monitoring of the Bank’s operations in the securities market with the Russian legislation, regulations issued by FSFM and other relevant authorities, best practice of self-regulated professional participants of the securities market, as well as PSB internal financial market regulations;
• Identification, assessment and prevention of license and other risks associated with PSB operations in the securities market.

In the course of the prevention control, internal bank documents are reviewed for identification of risks and compliance with legislation requirements. Consulting and methodological support is provided to the Bank’s divisions.

In 2008, the Bank’s Monitoring Service conducted 25 audits and checks at PSB head office and sub-branches in Moscow. Based on the audit results, the Service developed suggestions and recommendations for elimination of irregularities.

The Bank Monitoring Service priorities include enhancement of functional capabilities of the Bank’s securities transaction software; improvement of monitoring methodology; and development of measures aimed at preventing the use of insider information and price manipulation in the securities markets.