16. Statement of mBank S.A. on application of Corporate Governance principles in 2014

16.1. Application of corporate governance principles

mBank is subject to corporate governance principles contained in the following documents:

1. “Code of Best Practice for WSE Listed Companies"

2. “Principles of Corporate Governance for Supervised Institutions”

The text of the “Code of Best Practice for WSE Listed Companies” is available on the website of the Warsaw Stock Exchange (http://www.corp-gov.gpw.pl/), and the Principles of Corporate Governance for Supervised Institutions are available on the website of the Polish Financial Supervision Authority (http://www.knf.gov.pl/regulacje/praktyka/index.html).

“Code of Best Practice for WSE Listed Companies”

Since the introduction of its shares into public trading in securities, the Bank has made efforts to provide all shareholders with access to corporate information and to respect shareholders’ rights irrespective of the size of their stake. The aspiration to ensure full transparency of operation and to pursue the code of ethics inspired compliance with the best practices of listed companies starting with the “Code of Best Practice of Public Companies 2002”. Both the Management Board and the Supervisory Board of the Bank have passed resolutions expressing the intention to apply the recommendations and principles defined in the “Code of Best Practice” and the commitment to report any breach. The currently applicable version of the “Code of Best Practice for WSE Listed Companies” including amendments introduced by Resolution No. 19/1307/2012 of the WSE Supervisory Board of 21 November of 2012 came into effect on 1 January 2013. In December 2014, the Warsaw Stock Exchange opened consultations on draft amendments of the “Code of Best Practice for WSE Listed Companies”. The draft provides for amendments to the content, layout, and thematic organisation of the “Code of Best Practice”, as well as modifications of the corporate governance compliance reporting system.

In 2014, similarly to 2013, mBank applied the principles of the “Code of Best Practice for WSE Listed Companies” with the exception of Rule no. 10 point 2 in chapter IV of the “Code of Best Practice for WSE Listed Companies”.

The rule stipulates the obligation to ensure that shareholders have the possibility to participate in the general meeting with the use of means of electronic communication.

For many years, mBank has broadcast General Meetings in real time, however, without the possibility to engage in two-way on-line communication by allowing shareholders to speak during the General Meeting from a different location. The Bank’s By-laws and the Standing Rules of the General Meeting do not provide for the possibility to actively participate in General Meetings with the use of means of electronic communication.

Furthermore, in the opinion of the Management Board of the Bank, in the absence of developed market practice, the organisation of General Meetings with the use of means of electronic communication carries legal, organisational and technical risks. Binding provisions of the law do not define the status of a shareholder participating in a General Meeting with the use of means of electronic communication who does not take a part in voting, which generates unnecessary legal risks. It should be noted that mBank has a stable majority shareholder while a large part of minority shareholders are represented at each General Meeting even if participation in General Meetings with the use of means of electronic communication is not available.

In the opinion of the Management Board, the rules for participating in General Meetings of the Bank, currently applicable at the Company, allow for adequate protection of the interests of all shareholders, including the minority shareholders, allowing them to exercise all rights attached to shares. It should be noted that the draft new “Code of Best Practice” has largely relaxed the requirements to organise electronic General Meetings.

With respect to the Recommendations listed in the “Code of Best Practice for WSE Listed Companies”, Point 9 of the Recommendations, which calls for ensuring a balanced proportion of women and men in management and supervisory functions in companies, requires an additional commentary.

mBank ensures equal access of men and women to management positions, which however is not based on a predetermined parity.

The persons recommended and appointed to the Bank’s Management Board and Supervisory Board should display the highest competence, be adequately educated and experienced, and have a professional track record. Other factors, such as gender, are not a determinant in this respect. mBank is of the opinion that it would be unjustified to introduce regulations based on pre-established parities, and leaves the decision on selecting members of the Management Board and Supervisory Board in the hands of the duly authorised bodies of the Company.

As at the end of 2014, the 12-member Supervisory Board of mBank had two female members: Teresa Mokrysz and Agnieszka Słomka-Gołębiowska. The 7-member Management Board of mBank had one female member: Lidia Jabłonowska-Luba, Chief Risk Officer.

Principles of Corporate Governance for Supervised Institutions”

The “Principles of Corporate Governance for Supervised Institutions” approved by the Polish Financial Supervision Authority on 22 July 2014 are in effect since 1 January 2015. Although this report concerns the year 2014, reference should be made to the “Principles of Corporate Governance for Supervised Institutions” as well because the Management Board and the Supervisory Board of mBank passed decisions concerning the scope of their application as early as Q4 2014.

The “Principles of Corporate Governance for Supervised Institutions” cover relations with shareholders and clients, issues relating to the organisational structure, an effective and efficient internal control system, as well as the risks of business activities. The document emphasises that supervised institutions as institutions of public trust should exercise utmost care in their activities. Therefore, it is crucial that members of the authorities of supervised institutions represent the highest professionalism and ethics. Furthermore, a company’s shareholders are expected to act in a responsible and loyal manner.

mBank has accepted for application the “Principles of Corporate Governance for Supervised Institutions” excluding the rules defined in § 8 point 4 and § 16 point 1 of the “Principles”.

The rule in § 8 point 4, which provides as follows: “A supervised institution, when justified by the number of shareholders, should strive for facilitating the participation of all shareholders in the meeting of the General Meeting of the supervised institution, among others, through ensuring the possibility of electronic active participation in the meetings of the General Meeting”, is similar to rule 10 point 2 in chapter IV of the “Code of Best Practice for WSE Listed Companies”. As a large part of mBank’s shareholders are represented at General Meetings even if active participation with the use of means of electronic communication is not available, with a view to mitigating the risk inherent in active participation in General Meetings with the use of means of electronic communication, mBank has decided that non-compliance with the rule defined in § 8 point 4 was justified.

Likewise, mBank does not comply with the rule defined in § 16 point 1, which provides as follows: “It is proper that meetings of a management body shall be held in Polish. In case of need, necessary assistance of an interpreter should be ensured.” The non-compliance derives from the fact that all Members of mBank’s Management Board speak fluent English. Communication without an interpreter is more effective as discussions and decisions can be made without the participation of a third party (interpreter). In some circumstances, the participation of an interpreter could make discussions at Management Board meetings more difficult or prolonged due to the complex nature of issues under discussion as well as the specialised language. Furthermore, given that Management Board meetings review information that constitutes the company’s secret, it is legitimate to limit to the bare minimum the participation of non-members of the Management Board at its meetings. At the same time, most of mBank’s Management Board Members speak Polish, which implies that the Bank can be represented whenever participation of Management Board Members is required including communications in Polish without an interpreter. Furthermore, minutes of Management Board meetings as well as resolutions of mBank’s Management Board are prepared in two language versions, ensuring compliance with the provisions of § 16 point 2 of the “Principles”.

Some of the “Principles of Corporate Governance for Supervised Institutions”, especially those defined in chapter II, are addressed to shareholders of supervised institutions rather than such institutions; consequently, such principles cannot be approved for application by the Management Board or the Supervisory Board. The principles addressed to the shareholders will be presented to mBank’s shareholders at the Ordinary General Meeting.

Code of Banking Ethics

Irrespective of the corporate governance principles, mBank has for many years complied with best banking industry practices developed by the Polish Bank Association (ZBP). The currently applicable version of the Code of Banking Ethics was approved at the 25th General Meeting of the Polish Bank Association held on 18 April 2013. The Code of Banking Ethics is a set of principles referring to banks, their employees, and persons acting as intermediaries in banking activities. The Code of Banking Ethics includes two parts: Code of Best Banking Practice and Code of Employee Ethics. The Code of Banking Ethics is available on the website of the Polish Bank Association (http://zbp.pl/dla-bankow/zespoly-rady-i-komitety/dzialania-w-obszarze-legislacyjno-prawnym/komisja-etyki-bankowej).

Transparent information policy

mBank pursues an open, transparent, and effective information policy. Representatives of the Management Board and the Investor Relations Section actively participate in meetings with investors on a regular basis, both in Poland and abroad. The website operated by the Company has become an important communication platform. In the investor relations section the Bank publishes information on the shareholders of mBank, General Meetings, ratings, the Euro Medium Term Note Programme, quotations of the Bank’s shares on the WSE, analysts’ recommendations, the consensus on mBank Group’s forecasted performance, and the target share price. All those interested may review annual statements, periodic and current reports, presentations on the strategy and performance of mBank Group, monthly newsletter for investors and analysts, as well as the Investor Calendar.

mBank has been also publishing an on-line version of its annual report, which provides convenient and highly interactive access to financial data of mBank Group. The Bank’s website features mBank Analyzer, an innovative and interactive tool which allows users to analyse financial and business data of mBank Group from different angles. Additionally, the information is accompanied by webcasts of meetings with analysts at which the financial results of mBank Group are presented (for more information, please see section 11.3. Investor Relations at mBank).

The website has a section dedicated to corporate governance and best practice, which includes among others the By-laws and rules of the Bank’s authorities, statements on the application of corporate governance principles, principles of remunerating the Management Board and the Supervisory Board, information on incentive programmes, rules for changing the entity authorised to audit financial statements, and information on the participation of men and women in statutory bodies of mBank.