Ethical behaviour

Compliance system

The Group’s compliance system constitutes one of the bases upon which BBVA consolidates its institutional pledge to conduct all operations and businesses in accordance with strict codes of ethical conduct.

A basic element in BBVA’s compliance system is the Code of Conduct, updated in 2015 and available on BBVA’s corporate website ( bbva.com).

In line with the principles set by the Bank for International Settlements (BIS) and the reference regulations in this area, the Compliance Unit continues to organize its activity around the development and implementation of policies and procedures; communication and training; and the identification, assessment and mitigation of potential compliance risks, understood as those that affect the following issues:

Prevention of money laundering and terrorist financing (PML&TF).
Conduct with customers.
Conduct on securities markets.
Dealing with conflicts of interest.
Prevention of corruption and bribery.

The model of compliance risk assessment and management associated with these matters is global in nature. It is not a static concept; it evolves over time, strengthening those elements and pillars on which it is based and anticipating any new developments and initiatives that may arise in this field.

This model is built on the following basic pillars.

A suitable organizational structure with a clear assignment of roles and responsibilities throughout the organization.
Policies and procedures that clearly define positions and requirements to be applied.
Mitigation processes and controls applied to enforce these policies and procedures.
A technology infrastructure focused on monitoring and designed to guarantee the above objective.
Communication, training systems and policies implemented to raise employee awareness of the applicable requirements.
Metrics and indicators that allow the supervision of the global model implementation.
Independent periodic review of effective model implementation.

During 2017 the documentation and management of the model continued to be improved through a set of technological tools and improvements to the internal processes in the different countries. With respect to the digital transformation activities, it should be noted that during 2017 the supervision and advice governance teams that operate from Compliance Units were also strengthened. In addition, with the aim of the new European data protection regulations, during 2017 the activities and programs related to personal data protection developed by the Compliance Unit began to be integrated within BBVA’s Legal Services function, in which the position of data protection officer (DPO) was created.

Prevention of money laundering and terrorist activity financing

Prevention of money laundering and terrorist financing (hereinafter PML&TF) constitutes above all an ever-present objective that BBVA Group associates with its pledge to make improvements in the different communities in which it operates.

For BBVA, ensuring that its products and services are not used for illegal purposes likewise constitutes an essential requirement for safeguarding its corporate integrity, and thereby one of its main assets, namely, the trust of the people and institutions it deals with on a day-to-day basis (customers, employees, shareholders, suppliers, etc.) in the different jurisdictions where it operates.

To achieve the above objective, as a global financial group with branches and subsidiaries that operate in numerous countries, BBVA adopted a corporate model for managing the risk associated with PMN&TF. This model is applicable to all of the entities forming part of BBVA Group within the scope of PML&TF and not only takes into account regulations on prevention of money laundering in the jurisdictions in which BBVA operates, but also incorporates the best practices in the international financial industry in this regard, as well as the recommendations issued by international institutions such as the FATF (Financial Action Task Force). This management model is constantly evolving. In particular, risk analysis ensures that controls can be tightened and any additional mitigating measures that may be required to enhance the model can be implemented.

The risk management model of PLD&TF is subject to continuous independent review. Pursuant to Spanish regulations, an independent expert annually audits the BBVA Group matrix. This review is complemented by internal and external audits carried out by local supervisory bodies, both in Spain in other jurisdictions.

During 2017, BBVA continued to deploy the new monitoring tool, in Spain, Turkey and Mexico. The Group also began to apply new technologies to enhance PML&TF (for example, identification of customers through videoconference using facial recognition techniques). It carries out ongoing analysis of opportunities for applying new technologies (machine learning, artificial intelligence, etc.) to strengthen both the capacities to detect suspicious activities of the different entities making up BBVA and the efficiency of the PML&TF processes.

In addition, the different entities in BBVA Group in various jurisdictions were selected by local authorities to participate in a mutua review process carried out by FATF-GAFI.

Also worth noting BBVA’s collaboration with the different governmental bodies and international organizations in this field.

In the area of training related to PML&TF, each of the BBVA Group entities has an annual training plan for all its employees.

Conduct with customers

BBVA’s Code of Conduct places the customers at the center of its activities, with the aim of establishing lasting relations based on mutual confidence and the contribution of value.

To achieve this objective, BBVA has implemented policies and procedures to get to know its customers better, with the aim of being able to offer them products and services in line with their financial needs, as well as providing them with clear and accurate information, sufficiently in advance, on the risks of the products in which they invest. BBVA has also implemented processes geared to prevention, or where this is not possible, management of the possible conflicts of interest that may arise in the marketing of its products.

During 2017, the Compliance Unit focused its activity on adapting its rules and processes for the entry into force in 2018 of the new regulations on investor protection in the securities markets, such as the EU Markets in Financial Instruments Directive (MiFID II) and Regulation on Packaged Retail and Insurance-Based Investment Products (PRIIPs). During the year work also began to adapt to the European Union directives on distribution of insurance and real-estate credit.

Also of note is progress in the implementation of a global model of customer compliance that aims to establish a minimum framework of rules of conduct to respect in relation to customers, applicable in all jurisdictions and in line with the principles of BBVA Group’s Code of Conduct.

In addition, in 2017, the Compliance Unit carried out training courses for employees in its territorial units and its network of agents to achieve a better level of knowledge of the rules of conduct applicable to the customer products with particular focus on retail customers. Within the work for adapting to the new MiFID II Directive on knowledge and competence of the personnel that offers information or advice, BBVA S.A. has established a program of training and accreditation of the knowledge that the personnel must have to inform or advise on financial instruments.

Conduct on securities markets

Integrity in market activity is one of the commitments of BBVA’s Code of Conduct to the values making up the corporate culture of BBVA Group. For this purpose it establishes the general guidelines for action designed to preserve the integrity of the markets, which include standards and principles geared to the prevention of market abuse and guaranteeing their transparency and free competition

The Policy for Conduct in the Securities Markets includes the principles and general criteria for action designed to uphold BBVA’s integrity in the markets. Specifically, this Policy contains the minimum procedural guidelines regarding the treatment of privileged information, prevention of price manipulation, management of potential conflicts of interest and own account trading by employees.

It is worth noting in this respect that in 2017 the Policy and the Internal Regulation on Conduct in Securities Markets was updated, incorporating the regulatory changes derived from the Market Abuse Regulation, as well as best practices in the industry. As well as this, during the year the capacities of processes and tools for the detection of suspicious operations initially implemented in 2016 continued to be enhanced. There was also stronger compliance with the U.S. Dodd-Frank Act in terms of BBVA’s condition of swap dealer, with the development of a General Swap Dealer Policy that covers all the aspects of the Act.

From the point of view of prevention of market abuse, and as an additional measure for strengthening the body of policies and procedures covering this matter, the training of employees continued to be one of the unit’s priorities. In 2017 training actions were implemented for the areas and professionals with greatest exposure to market activity, including courses on privileged information for sales and market analysis teams in Corporate & Investment Banking and on market manipulation for trading and sales teams specializing in currency trading.

Other standards of conduct

The Code of Conduct, together with other internal policies and rules, develop the aspects related with the prevention of money laundering and terrorist financing, commitments with respect to politically exposed persons and those relating to conduct in business.

One of the main mechanisms for managing conduct risk in the Group is its whistleblowing channels. As set out in the Code of Conduct, BBVA employees have the obligation not to tolerate any conduct that is contrary to the Code, or any conduct in the performance of their professional duties that may harm the reputation or good name of BBVA. This whistleblowing channel is a means for enabling employees to report any breaches they observe or are notified by their collaborators, customers, suppliers or colleagues. The channel is available 24/7 and is also open to the Group’s suppliers. The reports are processed diligently and promptly. They are checked and measures are taken to resolve any issues. The information is analyzed in an objective, impartial and confidential manner.

The work carried out in 2017 included ongoing advice on applying the Code of Conduct. In particular, individual written and phone queries were responded to in the Group. Basically, they focused on potential conflicts of interest in matters such as managing personal assets or engaging in professional activities. During the year, BBVA continued its work on communication and dissemination of the new Code of Conduct, as well as training related to its contents.

In addition, since the introduction in Spain of the new regulations on the criminal liability of legal entities, BBVA has been operating in accordance with the legislation in force by establishing effective systems of supervision and control geared to preventing employees from committing crimes. This has been done through the establishment of a specific model of criminal prevention implemented in all the companies controlled by BBVA S.A. in Spain.

Among the possible crimes included in the crime prevention model are those related to corruption and bribery, as there are a number of risks that could arise in this respect in an entity of the nature of BBVA. Among these risks are those related to the following activities:

Acceptance or delivery of gifts or personal benefits and invitations to events, or similar.
Payments for facilitating activity.
Political contributions.
Donations.
Sponsorship activities.
Handling of corporate and travel expenses.
Hiring of employees.
Contracting of suppliers, agents or intermediaries.
Mergers, acquisitions or joint ventures.
Accounting and registration of transactions.

To regulate the identification and management of risks, BBVA has a body of internal regulations made up of principles, policies and other internal arrangements, including:

Principles:

Principles applicable to the disinvestment processes for BBVA Group goods or services in favor of Group employees
Principles to be applied to those involved in BBVA’s procurement process.

Policies:

Policy for the prevention and management of conflicts of interest in BBVA.
Responsible procurement policy.
Policy of events and acceptance of gifts related to sporting events of relevance.
Corporate travel policy.

The anti-corruption framework in BBVA is not only composed of this body of regulations, but also has a program that includes a risk map, as well as i) a set of mitigation measures aimed at reducing this risk; ii) procedures for action in case of situations of risk; iii) training programs and plans; and iv) indicators geared to the knowledge of the risk situation and its mitigation and control framework.

In addition to the above, BBVA has established other specific instruments for managing core commitments in each functional area. The most salient of these are:

The Compliance Statute.
Basic principles of risk management and the Risk Management Policy Manual.
Rules on dealing with individuals and entities of public importance in matters of financing and guarantees.

Within the general training program in this area, there is an online course that describes matters such as the basic principles related to the Group’s prevention framework on anti-corruption that reminds employees of BBVA’s zero tolerance commitment with respect to any form of corruption or bribery in its business activities.

It is worth noting that in 2017 BBVA was the first financial institution to obtain an AENOR certificate accrediting that its system for managing criminal compliance is in accordance with UNE 19601:2017 Standard published in May 2017.

Other basic commitments acquired by the Group are:

Commitment to human rights

BBVA has a commitment to human rights and work was performed to update it throughout 2017. This involved carrying out a due diligence process in all BBVA’s business and support areas across the Group’s whole footprint. This process has been carried out taking as a reference the guidelines on the Guiding Principles on Business and Human Rights, endorsed on June 16, 2011 by the United Nations Human Rights Council. It has also been anchored in the BBVA’s Purpose: to bring the age of opportunity to everyone. The materiality analysis carried out by the Group among its stakeholders makes clear that the main issues they are concerned with are related to human rights. Combined with this, BBVA has wanted to mitigate any reputational risk related to human rights, and to respond to demands by consumers, investors, analysts and civil society on the role of companies in this highly significant issue.

The Guiding Principles mentioned above are based on three pillars:

The State duty to protect human rights;
The corporate responsibility to respect human rights;
The joint duty to find mechanisms that ensure remedy in the case of any abuse of human rights.

To comply with these Principles and with the responsibility to prevent, mitigate and remedy the potential impacts on human rights in all its areas of operation and all its businesses, BBVA has begun a process in which it has:

identified the potential impacts of its operations on human rights;
designed mechanisms within the Company to prevent and mitigate them;
set up adequate channels and procedures to ensure that in the case of human rights violations there are sufficient measures in place to ensure remedy for the people affected.

Based on an analysis of the different areas in the Group and a study of the corporate culture, the Bank’s processes, its policies and mechanisms for handling claims and complaints, the issues on which BBVA has room for maneuver have been identified. These issues have been prioritized and set out in an action plan.

The main responsibility for applying this commitment relies with each area and each employee in the Organization. They have the duty to know the issues within their area of responsibility that may imply a violation of human rights and apply the due diligence to avoid them. Employees are also subject to the Bank’s Code of Conduct and each country’s legislation. The Responsible Banking area is in charged of the design, implementation and improvement of the commitment, as well as acting as a second line of defense for the rest of the areas; in this it shares duties with Legal Services and Regulatory Compliance.

In addition to this commitment to human rights, the Bank has a number of policies and regulations that help strengthen compliance, which include:

BBVA’s Code of Conduct, as mentioned above in the section on Compliance;
the Housing Policy in Spain;
the Responsible Procurement Policy;
the Equator Principles, which is developed in the section on Management of environmental and social impacts.

The Housing Policy in Spain

In Spain, the comprehensive plan to provide solutions to families in difficulties implemented by BBVA since the beginning of the crisis has been consolidated under BBVA’s Social Housing Policy, whose main aim is to help customers keep their homes.

This plan is divided into three core areas:

Offering solutions to all families with difficulties to pay their mortgage loans.
Ensuring that any family that is a BBVA customer and at risk of exclusion has a home and is not evicted.
Supporting families through employment programs that enable customers to regain their confidence and self-esteem.

In February 2012, BBVA decided to voluntarily adhere to the Code of Good Practices approved by the Government, which had the objective of granting benefits to families at risk of exclusion who had contracted a mortgage loan. With the approval of Royal Decree-Law (RDL) 27/2012, the Law 1/2013 and, finally, the RDL 1/2015 and the Law 9/2015, BBVA decided to proactively inform all its customers, engaged in a foreclosure process, of the existence of the above mentioned regulations and the extent of their effects, so that they could benefit from the advantages set out. A total of 2,676 homes are assigned to public entities.

BBVA is seeking at every refinancing option available in accordance with the customers’ ability to pay, in order to allow them to keep their homes. The Group has done this for 60,900 customers so far. Any situation can be referred to the Committee for the Protection of Mortgage Debtors for review. It analyzes every case in which the customers or their families face the risk of exclusion without legal protection, and provides individual solutions in accordance with each family’s specific circumstances (refinancing, debt remission, dation in payment, rented social housing in the debtor’s own home or the Bank’s available homes, etc.).

In this context, since the beginning of the crisis, BBVA has agreed more than 16,500 dations in payment with its customers (including dations involving products such as mortgage loans, consumer finance, etc.).

Responsible Procurement Policy

BBVA aims to integrate ethical, social and environmental factors in the supply chain for which it is responsible. That is why in 2017 it has drafted an Ethical Code for Suppliers, which defines the minimum standards of behavior in ethical, social and environmental conduct that suppliers are expected to comply with when they provide products and services.

The Responsible Procurement Policy establishes that during the procurement process special attention should be paid to comply with the legal requirements applicable with respect to human rights, employment rights, rights of association and environmental rights by all those affected by this process, and to involve them in the Group’s efforts aimed at preventing corruption. Likewise, the aim is to ensure that the choice of suppliers is adapted to the internal rules in place at any time, and in particular aligned to the values of the Group’s Code of Conduct, based on respect for the law, commitment to integrity, competition, objectivity, transparency, value creation and confidentiality.

The Responsible Procurement Policy also establishes as one of its principles to “raise awareness in social accountability of staff and other stakeholders involved in the Group’s procurement process.”