Novobanco’s Remuneration Policies were drawn up in accordance with the legislation in force at the time, in particular with the Legal Framework, Notice No 3/2020 of Banco de Portugal and the EBA Guidelines 2021/04 on sound Remuneration Policies and other related legislation, reflect the guiding principles of meritocracy and transparency and take into account (i) the objectives, long-term strategy and interests, (ii) the corporate nature and structure, (iii) the corporate culture and values, (iv) the risk strategy and culture (including environmental, social and governance risk factors), (v) the long-term interests of shareholders; and (vi) the avoidance of conflicts of interest and the bank’s failure to assume excessive risks.

Pursuant to and for the purposes of the Legal Framework, Notice No 3/2020 of Banco de Portugal, and in order to comply with the disclosure duties relating to the remuneration policies set out therein, the Remuneration Committee carried out an annual assessment of the implementation of the remuneration policies and remuneration practices and processes.

The Remuneration Committee did not identify any deficiencies, during the period under review.

The Remuneration Committee and the relevant departments for this exercise (e.g. Human Capital, Legal Affairs, Compliance and Risk) reviewed the remuneration policies of the Management and Supervisory Bodies and of the Employees, ensuring full alignment of the established practices with the applicable regulatory requirements.

As a result of this assessment, slight adjustments were made to the Remuneration Policies, namely the elimination of the chapter on the limitations of remuneration resulting from the commitments made by the Portuguese State to the European Commission, in the context of the State aid granted (State Aid no. SA.49275 (2017 / N)) and the inclusion of the deferral rule in situations where the variable component of remuneration is particularly high.

The Regulation on Remuneration Units has also been revised to ensure consistency and alignment with the Remuneration Policies.

The Remuneration Committee understands that the Remuneration Policies are appropriate to novobanco’s current situation and considers that the incentives defined for the members of the Executive Board of Directors and for the different categories of Employees, as well as the structure of these incentives, are in line with the long-term objectives of the institution and the various stakeholders.

The report prepared by the Remuneration Committee shall be submitted to the General and Supervisory Board, the General Shareholders’ Meeting and the Executive Board of Directors, which shall ensure the implementation of any measures identified.

i)  Description of the Remuneration Policy of the Management and Supervisory Bodies

Competencies for Policy Approval.

The approval of the Remuneration Policy of the Management and Supervisory Bodies is the responsibility of the General Shareholders’ Meeting, upon proposal of the Remuneration Committee of the General and Supervisory Board, which is also among other responsibilities responsible for:

•    Prepare decisions on the remuneration to be awarded to the members of the Executive Board of Directors, as well as the definition of their KPIs;

•    Define and approve the budget for the total variable remuneration of employees, based on the bank’s results, both in financial terms and in terms of their sustainability;

•    Verify that existing remuneration policies are up-to- date and, if necessary, propose appropriate changes;

•    Assess the mechanisms and systems put in place to ensure that remuneration systems are consistent with sound and effective risk management and assess the criteria used to define remuneration and risk adjustments (Clawback or Malus).

General and Supervisory Board.

Only the independent members of the General and Supervisory Board receive remuneration from novobanco, approved by the General Shareholders’ Meeting, which has only a fixed component and is paid 12 times a year.

Executive Board of Directors.

The remuneration of the Executive Board of Directors has a fixed component and a variable component.

Fixed compensation is established according to the complexity, level of responsibility and skills required for the role, and is paid 14 times a year. The variable component of remuneration is discretionary and is based on an individual and collective assessment of performance, taking into account quantitative and qualitative criteria. These criteria shall be defined and evaluated by the Remuneration Committee and communicated to the members of the Executive Board of Directors in due course.

The following rules must be observed in the process of awarding variable remuneration:

•    It may only be allocated if it does not jeopardise the bank’s ability to maintain a sound capital base, the bank has achieved a positive operational performance and provided that the allocation (and its disbursement, including deferred instalments) is consistent with sound and effective risk management practices;

•    It may not exceed 100% of the fixed annual remuneration, and the approval of a higher ratio, and up to a maximum limit of 200%, is subject to the approval of the General Shareholders’ Meeting;

•    It is deferred over a period of 5 years from the reference year, with 50% being paid in the year of allocation and the remaining 50% being acquired and paid on a pro rata basis in the four years following the allocation. In situations where the variable component of the remuneration exceeds one million euros, the amount to be deferred will be 60%, paid pro rata in the four years following the award;

•    50% of the variable remuneration amounts awarded will be in the form of “Remuneration Units”, whose terms and conditions of attribution, acquisition and payment are defined in the Remuneration Units Regulations. The value of each Remuneration Unit is determined by the Remuneration Committee, in accordance with the bank’s financial indicators, prior to the settlement of any of these deferred amounts.

Apart from any commitment agreed in the contracting process in the form of a signature bonus, no other type of variable remuneration can be guaranteed.

All amounts paid or deferred, regardless of whether they constitute acquired rights, are subject to the application of risk-based adjustment mechanisms, i.e. Clawback and/or Malus.

With regard to other benefits, such as Health Insurance or Mobile Phone, the bank’s internal policies defined for this purpose apply.

ii) Description of the Remuneration Policy for Employees

Competencies for Policy Approval.

The approval of the Employee Remuneration Policy is the responsibility of the Executive Board of Directors, on a proposal from the Remuneration Committee.

Identified Collaborators

Selection of Identified Collaborators.

The bank’s Employee Remuneration Policy foresees the regime applicable to employees who have or may have a significant impact on novobanco’s risk profile, and are classified as Identified Employees, in accordance with the provisions of the Policy.

The list of Identified Employees is reviewed annually and reported at the same frequency to Banco de Portugal, pursuant to Instruction No 18/2020 of Banco de Portugal.

Compensation Components. 

Fixed remuneration should reflect the competence, experience and responsibility inherent in the role performed, and should not be dependent on performance. The allocation of variable remuneration to the Identified Employees, as well as its amount, depends on the decision of the Remuneration Committee and the Executive Board of Directors. If there is a variable remuneration, it is calculated according to an individual and collective performance evaluation, and must consider the following principles:

Performance should be evaluated considering quantitative and qualitative criteria and through financial and non-financial variables:

•    The period of performance evaluation and attribution of variable remuneration must be multi-year, which implies that a substantial part of the amount awarded is deferred to take into account economic cycles, risk management and promote the retention of Identified Employees;

•    The variable remuneration must be deferred over a period of 5 years, assuming a payment of 60% in

the year of the assignment, with the remaining 40% acquired and paid on a pro rata basis in the four years following the assignment;

•    The variable remuneration of the Identified Employees may be excluded from deferral if the amount of the variable remuneration to be awarded is less than

€50,000 and represents less than one third of the employee’s total annual remuneration;

•    The amount of the variable remuneration may not exceed 100% of the fixed annual remuneration, and the approval of a higher ratio, and up to a limit of 200%, is subject to the approval of the General Shareholders’ Meeting;

•    50% of the Variable Remuneration assigned will be in the form of “Remuneration Units”, whose terms and conditions of attribution, acquisition and payment are defined in the Remuneration Units Regulations. The value of each Remuneration Unit is determined by the Remuneration Committee, in accordance with the bank’s financial indicators, prior to the settlement of any deferred amount;

•    Retention Plans for Identified Employees may be defined, which may result in a variable remuneration exceeding 100% of the fixed annual remuneration, subject to the approval of the General Shareholders’ Meeting and the conditions contained in the respective regulations;

•    Apart from any commitments agreed in the hiring process in the form of a signature bonus or retention bonus under a retention program, no other form of variable remuneration is guaranteed;

•    All amounts of variable remuneration paid or deferred, regardless of whether they constitute vested rights, are subject to the risk, Clawback and/or Malus adjustment mechanisms, as described in the Remuneration Policy.

iii)  Disclosure of Remuneration

Refer to point 5.6 Remuneration of the Members of the Corporate Bodies and Identified Staff.

Policy for Selection and Evaluation of novobanco’ Management and Supervisory Bodies and Key Function Holders

novobanco has a Policy for the Selection and Evaluation of Management and Supervisory Bodies and Key Function Holders (“Selection and Evaluation Policy”), thus, complying with the existing legal and regulatory framework and ensuring the application of the standards required in terms of internal governance for significant financial institutions.

The Selection and Evaluation Policy aims to ensure that the holders of Administration, Supervision and Key Functions (namely the holders of Risk, Audit, Compliance, Branch Directors, General Directors of branches and other directors that the Bank identifies as having functions that involve the assumption of risks, currently those responsible for Treasury, Marketing and Prevention of Money Laundering and Terrorism Financing) meet all the adequacy criteria, either at the time of their appointment or during their term of office or performance of duties.

This adequacy essentially translates into the ability to constantly ensure the sound and prudent management of the institution, taking into account the safeguarding of the financial system and the interests of customers, depositors, investors, creditors and other interested parties, with the following requirements being assessed: i) experience; (ii) reputation; (iii) absence of conflicts of interest and independence; iv) availability, v) collective adequacy, and (vi) adherence to the bank’s ethical standards.

The Policy was approved by novobanco General Shareholders’ Meeting on the 22^nd of March 2024.

Policy for the Selection, Appointment and Evaluation of the novobanco Group Statutory Auditor and the Contracting of Non-Prohibited Non-Audit Services

novobanco approved in 2018, and more recently revised in 2024, the Policy for the Selection, Appointment and Evaluation of the novobanco Group's Statutory Auditor and the Contracting of Non-Prohibited Non-Audit Services, thus complying with the applicable regulations.

The Policy applies to the selection, appointment and evaluation of the novobanco Group's Statutory Auditor and aims to ensure that it fulfils the necessary requirements of suitability (competence and suitability), professional experience, independence and availability, taking into account the nature, size and complexity of the business of novobanco and its financial subsidiaries.

To this end, the Policy defines the assessment criteria, stipulates an obligation to monitor the activity of the Statutory Auditor and establishes the internal responsibilities and procedures to be adopted in this context.

In addition, the Policy also defines the criteria and procedures to be applied in the case of contracting non-audit services from the Statutory Auditor, defining which services are permitted and which are prohibited.

This Policy was approved by novobanco's General Shareholders' Meeting on 22 March 2024.

Succession Planning Policy for novobanco

The Succession Planning Policy defines the process according to which novobanco ensures the proper transition and continuity of the activity of its Management and Supervisory Bodies and key function holders, as defined in the “Policy for Selection and Evaluation of Novo Banco’ Management and Supervisory Bodies and Key Function Holders”.

For this purpose, and to continue its Strategic Succession Planning, novobanco established the processes and methodologies it considered necessary and appropriate for the evaluation of potential internal and external candidates (“successors”). After the completion of this Plan, a list will be drawn up identifying the potential candidates.

The Policy was approved by novobanco General Shareholders’ Meeting on the 22^nd of March 2024.

The Markets in Financial Instruments Directive, no. 2014/65/EU, of 15 May 2014 (“MiFID II), and related regulations, which entered into force in January 2018, aim to reinforce investor protection and increase the transparency and quality of the financial market operation and services provided, and cover all persons and entities operating in the markets in financial instruments. In addition, the national legislation on financial intermediation activities (in particular the Securities Code) and life insurance mediation (in particular Law 7/2019 of 16 January) constitutes the basic framework for fair and transparent action by financial market operators and, as such, for the novobanco Group.

To address the international trend towards a tightening of the duties of financial intermediaries - of transparency, legality, completeness of information, diligence and protection of investors -, as well as changes in the rules for marketing financial instruments, novobanco has adopted the best practices in terms of the governance of products and services, ensuring the prior assessment and subsequent monitoring of its offer, with the Compliance Department having extended responsibilities in this area.

In compliance with the legal framework, novobanco has approved its standards and policies, and discloses them in a dedicated area of its website.

The most salient aspects of these standards and policies are summarised below:

Recording and register of communications. novobanco is obliged to keep recordings and registers of all communications with Customers and potential Customers, with regard to all services, activities and operations carried out.

Customer classification. novobanco classifies its customers for the purpose of transactions in financial instruments into one of three categories: non-professional, professional and eligible counterparty. These classifications have implications on the level of protection allocated to the investor. The lower the knowledge and experience of the customer about markets and financial instruments the greater the level of protection.

Assessment of adequacy. In order to ensure that the financial instruments or investment services it provides suit its Customers’ investment profile, novobanco asks its Customers and potential Customers to complete investor profile questionnaires, in order to obtain a more comprehensive and detailed image of, inter alia, their experience and knowledge of investment, their financial situation, their investment objectives (including capacity to withstand losses) and their risk tolerance. This sharing of information and knowledge permits to assess whether a given investment product or service is adequate to the specific situation of the investing client.

Safeguard of Customer Assets. The Securities Code sets forth that in all acts performed, as well as in accounting and transactions records, the financial intermediary should adopt procedures and implement measures permitting to maintain a clear distinction between its assets and the assets of each of its clients to ensure that the opening of proceedings for the insolvency, recovery of the company or reorganisation of the financial intermediary does not have effects on actions carried out by the financial intermediary on behalf of its clients. The financial intermediary may not utilise, for its own or a third party’s benefit, the clients’ financial instruments or exercise the rights inherent thereto, unless the holders have agreed thereto. novobanco has in place procedures that ensure compliance with these rules.

Offer screening process. novobanco has established procedures that govern the design, approval, distribution and monitoring of the products and services offered. These procedures provide for the screening of new products and services offers, and the monitoring of the existing offer.

Code of Conduct

The novobanco Group Code of Conduct came into force in 2015 and was revised and updated in 2021. The code applies to all the members of the management and supervisory bodies of the novobanco Group companies, to the employees of Novobanco and the novobanco Group entities, and also to providers of goods and services when such is contractually provided for, or mandatorily in the case of some outsourced services. The Code of Conduct promotes a set of rules and good practices to be followed by the employees in their relationship with the clients and with the bank itself and aims to ensure that everyone knows the ethical and professional principles and standards that should guide their performance and is aware of the need and importance to follow them so as to ensure that the interests of shareholders, employees and clients are at all times respected.

Policy of Conflicts of Interest

The Policy of Conflicts of Interest establishes rules on the identification, management and monitoring of potential conflicts of interest in the various activities of novobanco and the novobanco Group, but also with respect to their corporate bodies, employees, and ultimately, their suppliers. It enables compliance with the applicable legal and regulatory provisions, and seeks to ensure that any possible situation of conflict of interests identified is recorded, assessed, and, as the case may be, mitigated or, at limit, abstaining from action, by the group, the bank and its agents.

Whistleblowing Policy 

Novobanco remains strongly committed to the growing internalisation of a culture of compliance, namely entailing the reporting of undue or irregular behaviours or behaviours that go against the law, the regulations, good practices, and the bank's internal policies.

The Whistleblowing Policy regulates, through specific, independent and autonomous means, the reporting of irregularities by the bank's employees, as well as by service providers or any third parties, and its objectives are to preserve the bank's reputation, effectively protect its assets and those of its clients, and prevent or detect in advance any irregularities that may be committed.

This Policy also aims to ensure compliance with the provisions of the Legal Framework of Credit Institutions and Financial Companies, Bank of Portugal Notice No. 3/2020, the Securities Code, and Law No. 83/2017 of 18 August establishing measures to combat money laundering and terrorist financing (the "LBCFT").

Whistleblowing reports may also be submitted through the following channels, at the choice of the whistleblower:

a)     By letter to the Compliance Officer, address  Campus do novobanco, Av. Dr. Mário Soares, Taguspark, Edifício 1, 2740-119 Porto Salvo

b)     Through the Form available at www.novobanco.pt or, alternatively, if the whistleblower is a novobanco employee, through ‘Somos novobanco’ (intranet); ou

c)     By e-mail to: irregularidades@novobanco.pt

At the end of the current financial year, a new irregularity communication channel was implemented where it is possible to communicate irregularities in a safe and anonymous way, thus providing an alternative to the current channels.

Whistleblowing reports may also be submitted verbally.

The whistleblower who makes his/her report in written form may freely chose to do it anonymously, or else to sign it / identify him/herself, in which case he/she may request that his/her anonymity be maintained.

The Compliance Department is the structural unit that, in coordination with the Compliance Committee of the GSB, is responsible for monitoring the implementation of this Policy and for ensuring that the procedure for analysing and handling whistleblowing reports is properly implemented and that the measures deemed appropriate are effectively adopted.

In 2022, two reports of irregularities were received which, following enquiries, proved to be unfounded.

The General and Supervisory Board is responsible for managing the irregularities communication system, ensuring the confidentiality of communications.

Related-Party Transactions Policy

Novobanco’s Related-Party Transactions Policy sets down rules aimed at identifying transactions concluded between novobanco and its Related Parties and at ensuring that the bank complies with s with the applicable legal and regulatory provisions, namely the Bank of Portugal's Notice no. 3/2020, the European Banking Authority (EBA) Guidelines and Articles 85 and 109 of the Legal Framework of Credit Institutions and Financial Companies.

In this context, the control system implemented identifies those involved in transactions contracted with the bank, in strict compliance with the applicable legislation. The process of identification, analysis and validation is described in Internal Regulations. Certain assessments and approvals are mandatory prior to the conclusion of transactions (loan granting, placement or subscription of securities, real estate operations, acquisition or disposal of equity holdings or other contractual relationships). Specifically, proposed transactions with Related Parties must be submitted for analysis and opinion to the Compliance Department and the Risk Management function, for subsequent submission to the opinion of the Compliance Committee of the GSB (with subsequent ratification by the GSB), and for approval by the EBD and subsequent GSB ratification.  

Anti-Bribery and Anti-Corruption Policy

Corruption and bribery represent one of the key challenges in modern society and fighting them requires a joint effort by all sectors of society, including banking, which plays an important role in promoting a culture of public integrity. The fight against practices of corruption and bribery becomes everyone’s responsibility, requiring the development of a new set of preventive duties and methodologies across organisations and public and private entities. The Anti-Bribery and Anti-Corruption Policy approved by the Compliance Committee of the GSB, and by the EBD aims to prevent and mitigate the risk of corruption and bribery, and related practices, reaffirming novobanco's commitment to building up integrity in society.

Policies on the Prevention of Money Laundering and Terrorist Financing

A bank's ability to detect and prevent activities capable of constituting money laundering and terrorist financing is directly linked to the knowledge, by banks, of certain elements about their counterparties and respective transactions.

The novobanco Group, through its Compliance Department, sets up the conditions that enable the bank to detect and prevent, through adequate policies and procedures, the possibility of the Bank and the Group being used as vehicles for money laundering or terrorist financing activities, such risks materialising to a significant extent within the financial system. 

Aware of the challenge that this control and preventive action represents, the novobanco Group maintains the ongoing reassessment of the risks it incurs, by virtue of its business, operations and the geographies where it operates, endeavouring to identify weaknesses and areas of greater exposure, in order to ensure it has in place adequate methods of control and mitigation of money laundering or terrorist financing risks. The ability to prevent and, if possible, detect activities capable of constituting such crimes is directly linked to the bank's knowledge about its clients, their counterparties and the transactions they engage in, particularly at the following moments:

·       Opening of contract or change of a party in an existing contract, through what is known as KYC (Know Your Customer) - i.e., the identification of contract parties, representatives and beneficial owners must be effectively established;

·       Monitoring contracts' transactions - KYT (Know Your Transactions), spotting unusual situations, either beforehand or by contacting the client after the situation was detected.

·       Analysis of counterparties risk in investment and divestment transactions, and of transaction and source of funds circuits, under the terms of the Law.

To that end, novobanco Group, using software tools with internationally recognised results to complement the experience of its human capital, has created and developed assessment models that will ensure that greater scrutiny is applied where this proves more necessary.

novobanco Group, complying with its regulatory obligations, develops training exercises in preventing money laundering and terrorist financing for all its employees (commercial and central structures, including senior management, members of the management and supervisory bodies). Training can be remote or face-to-face, the latter mainly directed to new employees, and the objective is to equip them with skills that enable them to collaborate with the control functions in mitigating the risks inherent to the execution of their functions.

In 2022, novobanco maintained the training on money laundering and terrorism financing prevention, having provided 11 532.5 hours of online training (including 1 283 hours for senior management).

Training is seen as a key tool for a correct flagging by the employees of potential situations of money laundering and terrorist financing. On the other hand, it is also crucial for the purpose of the adequate fulfilment of the legal and regulatory duties to which the bank is subject.

The prevention of money laundering and terrorist financing is one of the foundations of confidence in the financial system and as such will continue to deserve permanent operational and strategic attention by the novobanco Group.

In 2022 the novobanco Group examined 10 745 new contracts, of which 185 were rejected. In addition, 1 860 other contracts were analysed, upon which their ownership was changed. It also analysed 15 375 transactions under existing contracts, of which 616 were reported to the competent authorities.