PASHA Bank

The bank pursues the following objectives in organizing a system on the management of legal risks:
- to ensure legitimacy of its activity in all spheres;
- to ensure that its legitimate interests at the time of signing and execution of agreements are met;
- to establish a legitimate framework for relationships between the Bank and its employees, to ensure that labor laws, business and corporate ethics are observed by the Bank and its employees.

The key objectives in establishing a system on the management of legal risks are:
- to organize unified management of legal risks;
- to engage all subdivisions and employees in risk management procedures;
- to establish common principles for identification, evaluation and control over legal risks required and sufficient to ensure the Bank’s interests in the legal sphere.

The fundamental principles for the organization of a system on the management of legal risks are:
- to determine a procedure for identifying, evaluating, establishing an acceptable level (a level which does not jeopardize the financial security of the lending institution and the interests of its lenders and depositors) of legal risks and monitoring (permanent observation) of the level of legal risks, including consolidated grounds;
- to develop a set of measures towards maintaining an acceptable level of legal risks, including control and (or) minimization of risks;
- to specify a procedure for information support on issues of legal risks (procedure for exchange of information between subdivisions and employees, procedure and frequency of submission of reporting and other information pertaining to the management of legal risks, etc.);
- to determine a procedure for the management of legal risks in remote banking, including Internet banking, in developing and introducing new technologies and conditions for bank operations and other transactions, in other financial innovations and technologies, in accessing new markets;
- to allocate authority and responsibility among the Supervisory Board, executive bodies, subdivisions and employees as regards main principles for the management of legal risks;
- to establish a procedure for exercising control over the effectiveness of management of legal risks.

Considering the said principles, the Bank is using the following methods to minimize the level of legal risks:
- to standardize banking operations and other transactions (procedures, regulations, technologies for implementing operations and transactions and signing agreements);
- to establish in-house regulations for having agreements, banking operations and other translations differing from standardized ones approved by the Bank’s legal department;
- to analyze the impact of the factor of legal risks (both as a whole and in line with their classification) on the Bank’s performance indicators;
- to permanently monitor changes in national legislation of the Azerbaijan Republic, legislation of the countries in which the Bank operates or plans to operate;
- to coordinate activities towards identifying, classifying and evaluating legal risks;
- to ensure that the Bank’s legal department is subordinated to a unified executive body;
- to optimize workload of legal department employees to ensure their continuous professional development;
- to allow the maximum possible number of employees access to the latest information on legislation;
- to encourage employees depending on their impact on the level of legal risks;
- to enhance reserves for the event of possible losses;
-to arrange for the insurance of legal risks, including the risk of losing ownership rights.

The system on the management of legal risks is organized by the bank in three stages:
- preliminary;
- current;
- subsequent.

The preliminary stage represents a system of administrative, organizational and financial measures towards preventing the emergence of legal risks before the Bank enters into contractual relations. This system also includes a set of measures to prevent offences on the part of Bank employees.

The current stage consists of identifying, analyzing and evaluating the emerging risks, as well as the current monitoring of the level of legal risks.

The subsequent stage consists of analyzing the drawbacks in the organization of the system which have led to the emergence of risks, recommendations on streamlining it and control over its effectiveness.

To prevent the emergence of risks, the Bank takes the following measures:
- to develop a transparent and appropriate management model aiming to rule out conflict of interest and management quality risks.
- to establish qualification requirements for its employees to avoid incompetent and unjustified actions; to make such requirements part of job description and (or) Regulations on subdivisions. Qualification requirements are also established for managers of the Bank, employees and the legal department.
- to conduct rigorous screening among Bank employees to exclude those with a history of offences, as well as persons suspected of legalizing incomes obtained in criminal ways, and financing terrorism.
- to provide a system for users to access the required legal information by means of specialized legal programs and to acquire the necessary legal information for the needs of the legal department.
- programs have been developed and introduced to identify and study customers, first of all those the Bank implements banking operations and other high-risk transactions with, and to establish and identify beneficiaries. The legal department provides legal support to officers dealing with identification of customers.
- to adopt and use the principles “know your customer” and “know your employee”.
- to establish accountability of managers and employees, establish a procedure for decision-making on banking operations and other transactions in accordance with the authorities stipulated under constituent and in-house documents; this procedure is established in such a way as to rule out conflict of interest at all stages of banking activity.
- to organize a system on developing, endorsing and approving standard agreements and transactions that would meet the requirements of legal protection of the Bank’s interests.
- to establish requirements for coordinating operations with the legal department in specific cases.
- to establish a procedure for exercising in-house control over banking operations and other transactions considering the nature and scope of activity, including the issues of countering the legalization (laundering) of incomes obtained in criminal ways, and financing terrorism.
- to establish a procedure for encouraging employees depending on the level of their qualification and workload; in doing so, the level of their engagement in the management of legal risks is taken into consideration.
- in order to prevent misappropriation and abuse, the Bank uses restrictive measures (limited access to the repository, signing of agreements on full financial liability with relevant employees, limited issue of resources to be accounted for, etc.).

The Bank exercises current control over changes in the legal framework and arranges for timely update of in-house regulatory documents and communication of such changes to its employees. Employees are continuously informed of the changes in national legislation by the legal department by means of electronic distributions containing brief summaries of changes in laws. The Bank monitors all information about the Bank available in the public domain in order to assess its impact on its business reputation, and makes a legal assessment of this information. The Bank makes a legal assessment of claims sent to the Bank and takes measures necessary to protect its legitimate interests.

The Bank continuously exercises control over professional aptitude of its employees, exercises current control over the integrity of valuables – auditing (inventory taking), control over the issue of funds to be accounted for and spending of materials for timely detection of misappropriation and abuse.