ANNUAL REPORT 2016 - Citco · functions. The recruitment of professionals has focused on individuals who either recently graduated or have gained valuable expertise in the market

Citco Bank Nederland N.V.

and Subsidiaries

ANNUAL REPORT 2016

ANNUAL REPORT 2016

This report is strictly confidential. Unauthorized use of this report is prohibited.

©The Citco Group Limited citco.com 2/87

Table of Contents

1. Management Board’s Report ......................................................................................................................... 4

2. Supervisory Board’s Report .......................................................................................................................... 10

3. Consolidated Financial Statements ............................................................................................................... 16

Consolidated income statement for the year ended December 31, 2016 ............................................................. 16

Consolidated statement of comprehensive income for the year ended December 31, 2016 ............................... 17

Consolidated statement of financial position as at December 31, 2016 ................................................................ 18

Consolidated statement of changes in equity for the year ended December 31, 2016 ......................................... 19

Consolidated statement of changes in equity for the year ended December 31, 2015 ......................................... 20

Consolidated statement of cash flows under indirect method for the year ended December 31, 2016 ............... 21

4. Notes to the consolidated financial statements ............................................................................................ 22

4.1. General ............................................................................................................................................................ 22

4.2. Principal accounting policies ........................................................................................................................... 24

4.3. Financial risk management ............................................................................................................................. 33

4.4. Banking and Custody Services ......................................................................................................................... 42

4.5. Personnel expenses ......................................................................................................................................... 42

4.6. Office and administration expenses ............................................................................................................... 43

4.7. Travel expenses ............................................................................................................................................... 43

4.8. Professional services ....................................................................................................................................... 43

4.9. Depreciation and amortization ....................................................................................................................... 43

4.10 Other operating expenses ............................................................................................................................... 44

4.11. Net finance (expense)/ income ....................................................................................................................... 44

4.12. Fees to independent auditors ......................................................................................................................... 44

4.13. Income tax expense ......................................................................................................................................... 45

4.14. Property, plant and equipment ...................................................................................................................... 46

4.15. Intangible assets .............................................................................................................................................. 47

4.16. Long-term investment ..................................................................................................................................... 48

4.17. Loans to affiliated companies ......................................................................................................................... 48

4.18. Deferred tax asset and liabilities ..................................................................................................................... 49

4.19. Trade receivables............................................................................................................................................. 51

4.20. Other receivables and accrued income .......................................................................................................... 51

4.21. Short-term investments .................................................................................................................................. 52

4.22. Loans and advances to customers .................................................................................................................. 53

4.23. Cash and cash equivalents .............................................................................................................................. 53

4.24. Share capital .................................................................................................................................................... 54

4.25. Provisions ......................................................................................................................................................... 54

ANNUAL REPORT 2016



4.26. Retirement benefits schemes ......................................................................................................................... 55

4.27. Other payables and accrued expenses ........................................................................................................... 55

4.28. Amounts owed to depositors .......................................................................................................................... 56

4.29. Contingencies and commitments ................................................................................................................... 56

4.30. Operating lease arrangements ....................................................................................................................... 57

4.31. Derivative financial instruments ..................................................................................................................... 57

4.32. Fair value of financial instruments .................................................................................................................. 58

4.33. Categories of financial assets and financial liabilities .................................................................................... 59

4.34. Financial assets and liabilities not carried at fair value .................................................................................. 60

4.35. Assets under Custody ...................................................................................................................................... 60

4.36. Litigations ......................................................................................................................................................... 60

4.37. Related party transactions .............................................................................................................................. 61

4.38. Directors’ remuneration .................................................................................................................................. 63

4.39. Events after the reporting date ...................................................................................................................... 63

5. CBN Financial Statements ............................................................................................................................ 65

CBN abbreviated income statement for the year ended December 31, 2016 ....................................................... 65

CBN statement of financial position as at December 31, 2016 .............................................................................. 66

CBN statement of changes in equity for the year ended December 31, 2016 ....................................................... 67

CBN Statement of changes in equity for the year ended December 31, 2015 ....................................................... 68

Notes to the specific items of CBN statement of financial position ....................................................................... 69

5.1 Property, plant and equipment ...................................................................................................................... 70

5.2 Intangible assets .............................................................................................................................................. 71

5.3 Investments in subsidiaries ............................................................................................................................. 72

5.4 Long-term investments ................................................................................................................................... 72

5.5 Other receivables and accrued income .......................................................................................................... 73

5.6 Short-term investments .................................................................................................................................. 73

5.7 Loans and advances to customers .................................................................................................................. 74

5.8 Cash and cash equivalents .............................................................................................................................. 74

5.9 Share capital .................................................................................................................................................... 75

5.10 Provisions ......................................................................................................................................................... 75

5.11 Other payables and accrued expenses ........................................................................................................... 76

5.12 Amounts owed to depositors .......................................................................................................................... 76

5.13 Related party transactions .............................................................................................................................. 77

6. Other information ........................................................................................................................................ 79

7. Independent auditor’s report ....................................................................................................................... 80

8. Appendices .................................................................................................................................................. 87

ANNUAL REPORT 2016



1. Management Board’s Report

Summary

During 2016, the Management Board continued to build on the positive direction towards the strategic objectives of Citco Bank Nederland N.V. and its subsidiaries (”CBN Group”). The CBN Group specializes in the provision of banking services related to investment funds and clients of corporate service providers. The head office is located in Amsterdam, but it also carries on business through its branches in Dublin and in Luxembourg. North American clients are served by Citco Bank Canada, a subsidiary of the Bank, which also provides custody services. The principal activity of our other subsidiary Citco Fund Services (Ireland) Limited (“CFSI”) is the provision of administration services to both Irish and non-Irish domiciled funds.

CBN Group has been able to record a significant increase in net interest margin in 2016 due to the increased client deposit levels combined with the Federal Reserve’s increased target interest rate at the end of 2015 while maintaining the cost base at a similar level compared to the previous year.

Management continues to monitor market developments for opportunities to expand its product offering. One area of focus is to provide fixed term deposit solutions for shared clients of the CBN Group.

The first and foremost priority of the CBN Group is the protection of depositors’ money, a priority which is higher than the return on capital or return on assets metrics. The long-term strategic focus area is therefore a continuation of prudent risk management.

Financial Performance

The financial performance of the CBN Group takes into account the results as derived from its Banking services, Custody activities in its Canadian subsidiary and CFSI’s fund administration activities.

A strong performance was posted in 2016 resulting in a net profit of EUR 24.9 million, an increase of EUR 8.2 million from 2015 (EUR 16.7 million). Revenues increased by EUR 14.6 million to EUR 134.2 million in 2016 (2015: EUR 119.6 million).

This increase was predominately achieved through higher interest margin results of EUR 35.1 million; an increase of EUR 16.8 million compared to EUR 18.3 million in 2015. Strategic initiatives related to increasing client deposit levels undertaken in previous years contributed significantly to this increase. A decrease of 4.7% or EUR 3.9 million in revenue from Citco Fund Services Ireland is recorded; 2016: EUR 81.0 million vs. 2015: EUR 84.9 million.

Operating expenses increased slightly by 1.2% or EUR 1.2 million to EUR 103.5 million, compared to EUR 102.3 million in 2015, thereby achieving a stable cost basis in 2016.

The Capital Adequacy Ratio (“CAR”) for CBN Group has been stable and far above the minimum requirements following Basel III regulations throughout the year 2016. By managing assets actively to offer returns while maintaining a stable CAR, CBN Group has been able to show a stable and conservative approach to risk and capital management leading to an average CAR of over 30% throughout the year. The Capital of CBN Group is fully composed of CET1 capital which amounted to EUR 249 million as of December 31, 2016 (2015: EUR 224 million). The Pillar 1 capital calculation equates to a CAR of 32.56% as of December 31, 2016 (2015: 30.72%).

Due to additional deposits which came in at year end and as a result of additional business volumes, as of December 31, 2016 the balance sheet of the CBN Group has grown from EUR 6 billion to EUR 6.6 billion.

ANNUAL REPORT 2016



Citco Bank Canada

Assets under Custody for Citco Bank Canada amounted to EUR 52 billion as of December 31, 2016, which is a year-on-year increase of EUR 2.3 billion, or 4.6% for the year. This is primarily the result of new clients. Citco Bank Canada expects Assets under Custody to grow in 2017, which will have a positive impact on operating income. The growth in Assets under Custody is expected to come from market appreciation, organic growth and new mandates. The increased custody fee income, combined with foreseeable increased interest margin, predominantly due to increase in average funding, has resulted in a forecasted increase in net profit in 2017.

Citco Fund Services (Ireland) Limited

The year 2016 proved to be challenging for CFSI, with modest growth of Assets under Administration. Investors’ subscriptions overall exceeded the redemptions and the hedge funds themselves posted modest positive performance. As a result, Assets under Administration grew by 4% year-on-year.

Over the past few years CFSI has further developed its Private Equity and Real Estate (“PERE”) service offering, and has grown its centre of excellence in Ireland. As a consequence of this strategic focus, PERE revenues increased by 33% year on year, from USD 4 million to USD 6 million. CFSI believes that as its clients and prospective clients are increasingly evaluating their cost base, they will seek to outsource more business to CFSI. CFSI believes it is well placed to service this additional business. Management is confident that CFSI will again achieve modest growth in both Assets under Administration and revenue in 2017.

Assets under Administration amounted to USD 122 billion as of December 31, 2016, which represents year-on-year increase of USD 4 billion or 4%.

Technology

The reputation of the CBN Group Citco Group of Companies (“Citco”) to assure the confidentiality, integrity and availability of its data is one of its top priorities and one of its most valuable assets. There is an absolute commitment to safeguarding clients’ assets and data. Citco has always regarded the strength of its technology as a competitive differentiator. Protection is achieved through multiple layers of security, ranging across application, system, network and physical security. Citco has increased the size of its IT security team by nearly 70 percent in the past three years. The team has bolstered both its operational and, importantly, architectural capabilities. Additionally, there is a security operations center that is staffed 24 hours a day, seven days a week, and an independent, specialist organization has been contracted to check all anomalous activity. The nature of the cyber security threats is continually evolving so Citco views IT security as an area for ongoing vigilance and investment.

At the core of Citco’s IT protection is its Security Policy. Set by a formal Policy & Standards Committee, this policy is continually reviewed to ensure alignment with the changing business and regulatory environment. Citco has established a formal system of governance, which aims to ensure effectiveness of controls. The IT security department in conjunction with the Operational Control Management team oversees the ongoing development and maintenance of these controls and leverages best practice frameworks such as Cobit, ISO, NIST and SANS. Citco received IS0 270001 certification in 2016. Citco operates a three lines of defense model and Citco’s Risk Management and Internal Audit departments also conduct periodic assessments, which effectively check the IT controls. To ensure that the highest security standards are maintained, Citco regularly tests for vulnerabilities and re-evaluates information security policies, procedures and practices.

The changing regulatory environment and the need for increased information security were factors in the decision to invest in a new core banking system. Management is confident that this will result in an enhanced, more efficient and effective system. This will enable the CBN Group to achieve further automation and efficiency in the delivery of its banking services and products.

ANNUAL REPORT 2016



Human Capital

Our employees form a critical part of our immediate and future success. To support both the business and employees the Human Resources organization has further professionalized itself through the creation of specialized support functions.

The recruitment of professionals has focused on individuals who either recently graduated or have gained valuable expertise in the market with third parties which we want to embed in our organization. We have also expanded the number of traineeship opportunities.

Continued education is encouraged through an internal E-Learning module with a variety of subjects being offered to all our employees and through external courses with appropriate recognition and certification. Management encourages all staff to pursue these learning opportunities in order to expand their knowledge base.

Management is working with the Human Resources organization on how to further improve the performance assessment process to timely recognize and support talent.

The average number of full-time employees for the year was 731 (2015: 749) of which 38 (2015: 39) were employed in The Netherlands. At the end of 2016 the gender split was 46% (female) and 54% (male). No significant changes are expected.

Remuneration

The remuneration policy of CBN Group is in line with its strategy and Risk Appetite, objectives and core values, complying with the rules and legislation in force, such as the Dutch Banking Code and the Regulation on Sound Remuneration Policies (RBB Wft 2014 by its Dutch acronym).

The Remuneration Policy reflects the sustained and long-term interests for CBN Group. In addition, it ensures that:

CBN Group is able to attract, develop and retain high-performing and motivated employees in a competitive, international market;

employees are offered a competitive remuneration package;

employees act within the risk appetite of CBN Group by making any variable remuneration risk neutral;

employees feel encouraged to create sustainable results; and

CBN Group’s strategy is supported.

CBN Group strives to reward the Management Board at the median level of the Dutch General Market and Financial Services Market. For all other employees CBN Group strives to reward at the market level of the local Financial Services Market.

The performance-based remuneration motivates and rewards dedicated performers who contribute significantly to the realization of CBN Group’s strategic and business targets and long-term interests in their respective function. The performance-based remuneration is a discretionary management tool and is based on a combination of the assessment of the employee and the overall result of CBN Group. This remuneration varies according to the type of position held and is never a “right” as it is not embedded in employment agreements.

The performance-based remuneration is awarded in a manner which promotes sound risk management and does not induce excessive risk-taking and respects the Risk Appetite of CBN Group.

The overall CBN Group bonus pool in any year will never exceed 20% of CBN Group’s overall fixed remuneration of that respective year. No individual employee has received a variable remuneration above 100% of their base salary.

ANNUAL REPORT 2016



Regulatory and control environment

Management will continue to ensure that the CBN Group complies with all regulatory and legal requirements. As in previous years, the regulatory landscape once again continued to develop and become more complex. National and European regulators implemented standards that pose an ongoing challenge for financial institutions in general. In addition a number of levies have been implemented that directly lead to a cost for CBN. Management continues to closely monitor these market conditions and should these lead to a revision of its pricing structure it will inform its stakeholders of its conclusion and underlying considerations.

In 2016 the CBN Group was subject to various thematic investigations and researches as part of the regulators’ annual plans and to which it fully cooperated. The CBN Group has been successful in establishing an enhanced reporting platform to comply with future requirements, in particular around XBRL.

The CBN Group continues to manage the necessary changes to its organization in connection with the new regulatory requirements. The CBN Group has continued its work in progress in relation to current and future Basel III and CRD IV rules. In 2016 CBN Group has expanded its effort in this area through the creation of the Capital Management department through the hiring of staff with relevant expertise to manage the Basel III and CRD IV requirements within the set timelines. Management is pleased to note that due to its conservative risk appetite it already complies with all of the future requirements for capital adequacy and liquidity.

The Compliance function has been further strengthened to meet all requirements and it is management’s expectation that further growth in time spent in this area will be needed over the coming years to meet these.

The CBN Group has spent significant resources, both human and capital, to ensure full compliance with both FATCA and the Common Reporting Standard (“CRS”). FATCA reporting to the relevant tax authorities was executed on a timely and accurate manner in 2016 while CRS was implemented as per January 1, 2016.

The Management Board has confirmed that it continues to adhere to the principles and best practices of the Dutch Banking Code. No shares have been granted to the Management Board as compensation as the CBN Group has no shares in circulation.

During the year under review, the CBN Group received a Service Organization Control 1 (“SOC 1”) Type #2 certification for the sixth consecutive year, obtaining an unqualified opinion from a big four audit firm. In 2016, the SOC 1 report was further enhanced to update existing control objectives and control activities for Banking, Depositary and Custody Services processes.

Management Board

The composition of the Management Board at the end of 2016 is as follows:

Mr. Michael Leers - Managing Director & Chairman of the Management Board with responsibilities for all aspects concerning General Management, branches and subsidiaries, Human Resources, Commercial Group, Finance, Legal and Internal Audit;

Mr. Frans van Proosdij - Managing Director, with responsibilities for all aspects concerning Corporate Governance, Integrity Assurance, Compliance and Risk Management, and the relationship management with the CBN Group’s lead regulator; and

Mr. Paul Symonds - Managing Director & Head of Cash Banking, with responsibilities for all aspects concerning Treasury Management, Credit, Operations and Information Technology.

The Management Board continues to meet the criteria of expertise and diversity in competencies as set out in the Management Board charter.

ANNUAL REPORT 2016



Risk Management

In order to facilitate the protection of depositors’ monies and capital preservation the CBN Group uses an Enterprise Risk Management framework (“ERM”). The critical elements of this framework are the effective and efficient management of the CBN Group’s key risks and the capital required to support them.

CBN Group’s risk management governance is structured around the three lines of defence model. The allocation of responsibility for risk management is structured accordingly, with the Management Board bearing ultimate responsibility for the organisation and oversight of the integrated risk management framework.

The operational departments are the first line of defence (risk owners). These departments have primary responsibility for managing day-to-day risks in their operating processes: whoever bears first line responsibility for obtaining results is also responsible for the risks associated with obtaining these results.

The main parties in the second line of defence are Risk Management, Compliance and Financial Control. The Risk Management function and the Compliance function have special responsibility for risk analysis, policy preparation and the coordination of efforts to control the CBN Group’s risks. They also bear the responsibility for monitoring the first line risk owners, with a remit that extends across the entire CBN Group. The Management Board is responsible for formulating risk appetite with regard to the objectives. The risk appetite is used as the basis for setting a series of limits and guidelines for managing market, liquidity, credit, operational and strategic risks throughout the CBN Group.

The third line of defence is Internal Audit, which conducts audits on the first and second lines’ activities as a means of independently and objectively assessing the effectiveness of internal controls. Internal Audit reports directly to the Chairman of the Audit Committee.

CBN Group has established a variety of committees through which the Management Board delegates advising and monitoring of CBN Group’s overall actual and future key risks. These committees operate within the mandate granted by the Management Board, with the latter remaining ultimately responsible for structuring and supervising the overall risk management framework.

Some of the more important committees are the Management Board Risk Committee, which monitors compliance with CBN Group’s risk management policies and procedures, and the three sub-committees - the Asset & Liability Committee, Operational Risk Committee and Credit Committee - that manage specific risk categories. At the Supervisory Board level there is the Audit Committee and the Risk and Compliance Committee.

Enterprise Risk Management (ERM) framework

The ERM framework ensures a structured approach to the identification, assessment and mitigation of the CBN Group’s key risks. An ERM dashboard highlighting the current status of the key risk categories and related drivers is produced for the Management Board Risk Committee to provide oversight, assess the capital requirements for each risk category and feed into strategic decision making.

The Management Board assesses on an ongoing basis whether these risks are appropriately managed. On a regular basis, the Management Board reviews the potential impact of these risks on the development of the business against the approved risk appetite and capital adequacy.

Current capital levels of the CBN Group exceed the minimum capital requirement (Pillar 1) as well as the requirement assessed by the CBN Group’s Management Board in its ICAAP (including Pillar 2). The amount of regulatory capital held by the CBN Group continues to be higher than its internal target.

ANNUAL REPORT 2016



CBN Group’s Risk Appetite, defined according to its risk assessment methodology, is minor and CBN Group is risk averse in all its activities. The Management Board strives to achieve its strategic objectives while remaining within its minor risk appetite. This is achieved through the implementation of an ERM framework which incorporates the three lines of defense principle and robust risk governance. Commercial and growth initiatives are planned and executed in a prudent and balanced manner following the policies laid down in the ERM framework to monitor adherence to the risk appetite, while ensuring compliance with applicable banking rules and regulations. The Management Board understands and accepts that in certain areas some risk appetite trade-off is necessary to create added value for its stakeholders.

A more comprehensive quantitative description of the financial risks (credit risk, market risk and liquidity risk) of CBN Group is part of the financial statements in section 4.3. Financial risk management.

Outlook

The CBN Group optimizes its cash management activities using various tools to identify client funding behaviours, core deposit levels and liquidity patterns. These tools will assist the CBN Group to invest in higher yielding instruments in a timely and cost efficient manner whilst still maintaining a prudent risk management approach.

The year 2016 was volatile from a political perspective. Huge uncertainties faced by the UK over its “Brexit” negotiations, coupled with the new US President created volatility in their respective national economic forecasts. This translated into volatility within the foreign exchange and inter-bank rates markets. We continue to see changes to the behavior of our markets due to the political uncertainties and the impact of regulatory changes. In addition, Management will assess the impact of new technology on its business model. Management is confident that the quality and liquidity of the CBN Groups’ balance sheet enables it to adapt to the changing regulatory and economic environment.

Management expects that average funding levels will remain relatively stable for 2017 and that the CBN Group can benefit from recent and future Federal Reserve’s increases in the target interest rate. These expectations are included in the CBN Group financial forecasting model although there is always a level of uncertainty around forecasting client and market behavior.

Management is not aware of any significant developments that occurred and can have an impact on the performance or financial performance of the CBN Group.

Amsterdam, May 4, 2017

Managing Directors: Assistant Managing Directors:

M. Leers R.J. Boonstra

F. van Proosdij M.O. Knapen

P.N. Symonds

Dublin branch: Luxembourg branch:

K. Dolan A. de Groot

ANNUAL REPORT 2016



2. Supervisory Board’s Report

The Supervisory Board of Directors hereby presents the 2016 Annual Report of Citco Bank Nederland N.V. and its subsidiaries, (the “CBN Group”). The Annual Report includes the report of the Management Board and the Annual Accounts.

The Supervisory Board supervises the Management Board of the CBN Group and its general affairs, the business and advises the Management Board. In fulfilling its tasks, the Supervisory Board is guided by the interests of the CBN Group and its business, and takes into account the relevant interests of all stakeholders in the company.

The Supervisory Board has approved the financial statements after their audit by Deloitte Accountants B.V., and proposes to the Annual General Meeting of Shareholders that the 2016 financial statements be adopted as submitted and that the Board of Managing Directors be discharged for their successful conduct of the CBN Group’s affairs and the members of the Supervisory Board for their supervision.

General

The increase in US interest rates of 0.25% in late 2015 by the Federal Reserve, which was the first increase since the onset of the extended recession beginning in 2008, moderately benefitted the CBN Group over the course of 2016, since its assets are primarily US Dollar based. Likewise, another 0.25% increase that was mandated by the Federal Reserve in December 2016 will yield a similar benefit to the CBN Group over the course of 2017.

The most recent Federal Reserve rate increase in March 2017 is an indicator of the central bank’s confidence in the health of the U.S. economy. It clearly implies that Federal Reserve officials believe that inflation and the labor market are trending on the correct path. The expectation is that interest rates will gradually increase over the next several years, unless the economy cools and begins to contract. It is this rate increase expectation that is pushing bond prices lower.

The current view of the Federal Reserve Chairman Yellen, confirms that gradual increases in the federal funds rate will likely be appropriate, although no indication was given when the next rate increase would occur.

Role of the Supervisory Board

The Supervisory Board is responsible for the overall oversight of the CBN Group. It accomplishes this by supervising, monitoring and advising the Management Board on a broad range of topics intrinsic to the overall functions of the institution, including, but not limited to achievement of the CBN Group’s objectives; operational performance; strategy and risks inherent it its business activities; structure, management and effectiveness of internal risk management and control systems including audit; financial management and reporting processes; relationship with shareholders; compliance with laws and regulations; corporate governance and corporate social responsibility.

In fulfilling its tasks, the Supervisory Board is guided by the interests of the CBN Group and its business, and takes into account the relevant interests of all stakeholders in the CBN Group.

ANNUAL REPORT 2016



Composition of the Supervisory Board

The composition of the Supervisory Board remained static during 2016. No new appointments or retirements occurred during the period.

The current membership of the Supervisory Board is provided below:

Mr. Charles Rund – Mr. Rund, age 73, serves as the Chairman of the Supervisory Board of Directors and has over 45 years of experience in the international banking sector, serving in the position of general manager in numerous countries such as the USA, Brazil, Uruguay, Aruba, Curacao and The Netherlands. He is a former vice president of Bank of America and ABN Amro Bank. He was Managing Director & General Manager of Multibanco Internacional de Investimentos S.A. (Bank of America’s investment banking affiliate in Brazil); First National Bank of Aruba N.V. and Citco Bank Nederland N.V. Mr. Rund is a US citizen and was appointed as Supervisory Director in 2005. Mr. Rund provides expertise in the area of general management, custody, brokerage and treasury.

Mr. Dirk Jan van der Poel – Mr. van der Poel, age 56, serves as the Chairman of the Risk and Compliance Committee and has over 30 years of experience in the Accountancy, IT Risk and Advisory, Mergers and Acquisitions sectors in various industries on strategic, tactical and operational levels. He is a former IT Risk and Advisory Partner at Ordina, KPMG and Arthur Andersen. During 2015 he joined ING Bank as Corporate Head of Information Risk Management. Mr. van der Poel is a Dutch citizen and was appointed as a Supervisory Director in 2012. Mr. van der Poel’s areas of expertise within the Supervisory Board are risk, governance and IT.

Mr. Peter de Ruijter – Mr. de Ruijter, age 61, was appointed Supervisory Director and Chairman of the Audit Committee as of March 1, 2015. Mr. de Ruijter was educated and began his career as a chartered accountant/auditor, and has over 25 years of international executive experience as a general manager of Fortis Bank/MeesPierson and subsequently as CEO of Staalbankiers N.V. He also holds a Supervisory Board membership position in Mizuho Bank Europe N.V. In addition to audit, he will also provide expertise in banking and treasury management, corporate governance, risk management and regulatory affairs.

Mr. Jan Buné – Mr. Buné, age 64, was appointed as Supervisory Director and Member of the Audit Committee as of January 28, 2016. Mr. Buné is a former senior audit partner at Deloitte with over 40 years of experience in public accounting and business advisory. He also holds a supervisory board membership position at Mail.ru Group Ltd, Burgland Real Estate BV and Stichting Achmea General Pension Fund. He is also Chairman of the Risk Advisory Committee of PayU internet payments. Furthermore he is a Commissioner at the Media Supervisory Authority in the Netherlands. His main responsibilities in the Supervisory Board of the CBN Group lie in the area of audit, finance, governance, compliance and control.

Diversity Profile of the Supervisory Board 2016

Name Dat

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Charles Rund 1943 • • • • M

Jan Buné 1953 • • • • • • • M

Peter de Ruijter 1956 • • • • • • • • • • M

Dirk Jan van der Poel 1961 • • • • • • • • • M

ANNUAL REPORT 2016



Retirement Schedule Supervisory Board 2016

Mr. Rund will retire as supervisory director and Chairman of the Supervisory Board in May 2017. At the Supervisory Board meeting in May 2017 a new Chairman will be appointed by the shareholder of the CBN Group. It is the intent to continue with a Supervisory Board consisting of four persons.

Meetings

During 2016, the Supervisory Board met seven times; three of which were in formal sessions and four conference calls to address specific matters. Among others, individual meetings were called for the discussion and approval of the 2016 Budget and the Annual Report.

Life Long Education Program/Induction Program

The Lifelong Learning Program continued with all Supervisory Board members receiving training in the following areas:

Compliance Change Program

Bockchain Technology

Additionally, individual members of the Supervisory Board undertook outside training courses. An Induction Program for new Supervisory Directors was provided to Mr. Buné upon his appointment as a board member in order to familiarize him with the products and strategies of the Company and its trust and fund administration subsidiaries. The Supervisory Board has determined that its members continue to meet the expertise requirements of the prevailing regulations.

Committees of the Supervisory Board

The Supervisory Board has three permanent committees to which certain tasks are assigned: the Audit Committee, the Risk and Compliance Committee, and the Remuneration Committee. These committees exist to assist the Supervisory Board in fulfilling its oversight responsibilities. Each committee is comprised of a minimum of two Supervisory Board members, with the exception of the Remuneration Committee, on which all Supervisory Directors are members. Members of the boards are elected by the Supervisory Board of Directors and serve until successors are elected.

Name (year of birth) First appointment First re-appointment Second re-appointment Final retirement

Charles Rund (1943, Chairman) 13 May 2005 13 May 2009 13 May 2013 13 May 2017

Jan Buné (1953) 28 January 2016 28 January 2020 28 January 2024 28 January 2028

Peter de Ruijter (1956) 1 March 2015 1 March 2019 1 March 2023 1 March 2027

Dirk Jan van der Poel (1961) 10 August 2012 10 August 2016 10 August 2020 10 August 2024

Name Audit Committee

Risk &

Compliance

Committee

Remuneration

Committee

Charles Rund Member Member Chairman

Jan Buné Member Member

Peter de Ruijter Chairman Member

Dirk Jan van der Poel Chairman Member

ANNUAL REPORT 2016



Remuneration

A Remuneration Committee has been established, the composition of which is comprised of all Supervisory Board members. The Remuneration Committee oversees the remuneration plans for the CBN Group as set forth with the Remuneration Committee Charter and the Remuneration Governance Framework. The committee has the responsibility to recommend and monitor the level and structure of remuneration for the Management Board, and for the Identified Staff; consisting primarily of control functions. It also approves and monitors Non-identified Staff if variable remuneration is above 16% as mandated in the prevailing regulatory statutes.

In fulfilling its responsibilities, the Remuneration Committee takes into account all factors it deems necessary to attract, retain and motivate management and staff of sufficient quality to run the CBN Group successfully within the approved risk and governance framework, to meet the CBN Group’s long term strategic goals, in adherence to prevailing regulations.

For 2016 bonuses and 2017 salary actions, the Supervisory Board reviewed, commented on and approved the recommended salary and bonus actions for the Management Board, Identified Staff and Non-Identified staff. In accordance with the Supervisory Board Charter, it has recommended these salary and bonus actions to the shareholder for approval by the Annual General Meeting of Shareholders.

The Remuneration Committee met four times during 2016, with all members present.

Audit Committee

The primary function of the Audit Committee is to assist the Supervisory Board in fulfilling its oversight responsibilities for the financial reporting process, the system of internal control, the audit process and the process for monitoring compliance with laws, regulations and the policies/code of ethics. Mr. Peter de Ruijter was appointed Chairman of the CBN Group’s Audit Committee. Mr. Jan Buné and Mr. Chuck Rund are the other members of the committee.

The Audit Committee met three times during 2016. All meetings were attended by all the committee members and minutes were distributed to the Supervisory Board.

The Audit Committee reviews the annual financial statements of the CBN Group; annually reviews the Audit Committee Charter and the Internal Audit Mandate; reviews and approved the appropriate key performance indicators of the Internal Audit function; arranges for periodic independent assessment of the Internal Audit function; reviews the regulatory reporting of the CBN Group, and approves the Internal Audit Plan for the CBN Group.

Additionally, the Audit Committee recommends the appointment, compensation and retention of the independent auditors and reviews the work of the independent auditor who reports to the Audit Committee. It reviews the performance of the independent auditor and recommends removal if circumstances warrant.

The Audit Committee reviews the financial, accounting and reporting procedures and through consultation with the independent auditor and financial management, reviews the integrity of the financial reporting processes of the CBN Group.

Risk and Compliance Committee

The Risk and Compliance Committee assists the Supervisory Board with the performance of its duties in relation to risk and compliance. It is responsible for the oversight of all banking related aspect of the CBN Group’s risk control and monitoring systems. This encompasses all risks including credit, operation, IT & Security, and liquidity and market. It also oversees the CBN Group’s legal, regulatory and corporate governance compliance. The Chairman of the Risk and Compliance Committee is Mr. Dirk Jan van der Poel, and Mr. Charles Rund is the other member of the committee.

ANNUAL REPORT 2016



The Risk and Compliance Committee supervises the Enterprise Risk Management (ERM) framework pursued by the Management Board and its implementation. It regularly reviews and assesses operational risk. It discusses the CBN Group’s risk profile and assesses at a strategic level whether the CBN Group’s activities are aligned with the approved risk appetite.

The Risk and Compliance Committee assesses the CBN Group’s compliance and internal control functions by undertaking the following actions amongst other: it supervises the CBN Group’s adherence to rules and regulations applicable to it; receives updates from the compliance officer on legal, regulatory and compliance matters; assesses findings of investigations by regulatory and/or supervisory authorities; assesses changes in the design and effectiveness of compliance systems; informs the Supervisory Board of any matters that could affect the CBN Group’s reputation or activities, and assesses the effectiveness of the compliance function.

The Risk and Compliance Committee supervises the CBN Group’s adherence to the principles and best practices of the Dutch Banking Code, Dutch Corporate Governance Code, and other regulatory guidelines. In this regard, please refer to the Management Board Report regarding the CBN Group’s compliance with the Dutch Banking Code. The Supervisory Board confirms the stated view that the CBN Group is compliant with the Dutch Banking Code.

The Risk and Compliance Committee also assesses whether the Management Board communicates the right management culture by highlighting the importance of adherence to corporate governance principles and best practices and whether it ensures that all employees understand their roles and responsibilities.

During 2016, the Risk and Compliance Committee met four times, attended by all members of the committee.

Independence and Self Evaluation

Independence

The composition of the Supervisory Board reflects its independence and complies with the independence of the Dutch Corporate Governance Code. Members act both critically and independently in carrying out their individual responsibilities.

Conflicts of Interest

The Supervisory Board has internal rules established to govern actual and potential conflicts of interest. Members annually sign the Conflict of Interest Policy that they will adhere to these rules. No conflicts of interest occurred in 2016.

Self Evaluation

In 2016 the Supervisory Board performed an annual self-evaluation and issued a report regarding its effectiveness. Also, during the last quarter of 2016, an evaluation of the effectiveness of the Supervisory Board was made by an outside agency. This evaluation was still in progress at the end of 2016 and is expected to be finalized during the second quarter of 2017 including interviews with individual Supervisory Board members. The results of the outside evaluation will be discussed by the Supervisory Board upon finalization of the report.

Conclusion

Given the challenging banking environment, the Supervisory Board is of the opinion that it has effectively discharged its duties in an effective manner. Keys to this result are, among others, the composition of the Board; the expertise and experience of its members, level and frequency of meetings, effective committees, access to information; and good working relationship with the Management Board and staff.

ANNUAL REPORT 2016



The Supervisory Board has approved the financial statements after their audit by Deloitte Accountants B.V. The Supervisory Board proposes to the Annual General Meeting of Shareholders that the 2016 financial statements be adopted as submitted and that the Board of Managing Directors be discharged for their conduct of the bank’s affairs and the members of the Supervisory Board for their supervision.


Supervisory Directors:

C. Rund, Chairman

J.G.C.M. Buné

D.J. van der Poel

P.A. de Ruijter

ANNUAL REPORT 2016



3. Consolidated Financial Statements

Consolidated income statement for the year ended December

31, 2016

Note

2016

2015

EUR 000

EUR 000

Revenue:

Fund administration and investor relation services

81,003

84,980

Banking and custody services 4.4

53,181

34,648

Other income

77

–

134,261 119,628 Operating expenses:

Personnel expenses 4.5

40,805

41,567

Restructuring expenses

1,130

704

Office rent

4,562

4,872

Office and administration expenses 4.6

2,694

2,350

Travel expenses 4.7

1,429

1,155

Professional services 4.8

1,232

2,677

Depreciation and amortization 4.9

1,236

783

Other operating expenses 4.10

50,431

103,519

48,202

102,310

Net profit from operations

30,742

17,318

Net finance income 4.11

(990)

533

Net profit before tax

29,752

17,851

Income tax expense 4.13

4,894

1,110

Net profit after tax

24,858

16,741

Attributable to:

Shareholder of CBN

24,858

16,741

Net profit for the year 24,858 16,741

ANNUAL REPORT 2016



Consolidated statement of comprehensive income for the year

ended December 31, 2016

2016

2015

EUR 000

EUR 000

Net profit for the year

24,858

16,741

Other comprehensive income, net of income tax:

Items that may be reclassified subsequently to consolidated income statement:

Foreign exchange gain 8,525 23,269 Revaluation of available-for-sale assets

(308)

(169)

Total other comprehensive income, net of income tax

8,217

23,100

Total comprehensive income for the year

33,075

39,841

Attributable to: Shareholder of CBN 33,075 39,841

ANNUAL REPORT 2016



Consolidated statement of financial position as at December 31,

2016

Note

2016

2015

EUR 000

EUR 000

Assets

Non-current assets

Property, plant and equipment 4.14

6,910

7,009

Intangible assets 4.15

84

–

Long-term investments 4.16

162,236

442,334

Loans to affiliated companies 4.17

7,567

3,542

Deferred tax assets 4.18

5,099

181,896

12,274

465,159

Current assets

Trade receivables 4.19

4,296

3,806

Other receivables and accrued income 4.20

68,886

77,439

Current tax receivables

1,029

437

Receivables with affiliated companies

3,779

20,016

Short-term investments 4.21

2,522,656

2,080,452

Loans and advances to customers 4.22

4,717

14,130

Cash and cash equivalents 4.23

3,851,342

6,456,705

3,341,034

5,537,314

Total assets

6,638,601

6,002,473

Equity and liabilities

Share capital 4.24

5,000

5,000

Additional paid-in capital

48,503

48,503

Translation reserve

45,114

36,589

Revaluation of AFS Assets

(367)

(59)

Retained earnings

180,681

155,824

Total equity attributable to the shareholder of CBN

278,931

245,857

Non-current liabilities

Deferred tax liabilities 4.18

2,085

6,832

Other liabilities

685

2,770

447

7,279

Current liabilities

Trade payables

381

1,194

Other payables and accrued expenses 4.27

65,897

63,462

Payables to affiliated companies

1,027

847

Provisions 4.25

66

–

Deferred income

1,353

231

Current tax liabilities

310

55

Amounts owed to depositors 4.28

6,287,866

6,356,900

5,683,548

5,749,337

Total equity and liabilities

6,638,601

6,002,473

ANNUAL REPORT 2016



Consolidated statement of changes in equity for the year ended December 31, 2016

Issued ordinary shares

Additional

paid-in capital

Translation

reserve Revaluation

of AFS Assets Retained earnings

Total

EUR 000 EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

Balance as at January 1, 2016 5,000 48,503 36,589 (59) 155,823 245,856

Net profit for the year – –

–

–

24,858

24,858 Other comprehensive income – –

8,525

(308)

–

8,217

Total comprehensive income – –

8,525

(308)

24,858

33,075

Total transactions with shareholder – –

–

–

–

–

Total equity attributable to

shareholder of CBN as at December 31, 2016 5,000 48,503

45,114

(367)

180,681

278,931

ANNUAL REPORT 2016



Consolidated statement of changes in equity for the year ended December 31, 2015



Translation reserve

Pension

remeasurement (loss)

Revaluation of

AFS Assets Retained earnings

Total

EUR 000 EUR 000 EUR 000 EUR 000 EUR 000

EUR 000 EUR 000

Balance as at January 1, 2015 5,000 48,503 13,320 – 110

139,082 206,015

Net profit for the year – – – – – 16,741 16,741 Other comprehensive income – – 23,269 – (169) – 23,100

Total comprehensive income – – 23,269 – (169)

16,741 39,841

Total transactions with the shareholder – – – – –

– –

Total equity attributable to the shareholder of CBN as at December 31, 2015 5,000 48,503 36,589 – (59)

155,823 245,856

ANNUAL REPORT 2016



Consolidated statement of cash flows under indirect method for

the year ended December 31, 2016

Note

2016

2015

EUR 000

EUR 000

Cash flows from operating activities:

Net profit for the year

24,858

16,741

Adjusted for:

• Income tax expense 4.13

4,894

1,110 • Depreciation 4.9

1,202

782

• Amortization 4.9

34

1

• Net interest income 4.11

(457)

(433) • Net interest income from banking activities 4.4

(35,053)

(18,338)

(4,522)

(137) Movement in working capital:

• (Increase)/decrease in trade receivables

(490)

(2,529)

• Decrease/(increase) in other receivables and accrued income

10,258

8,777 • Decrease/(increase) in receivables with affiliated companies

16,237

(15,277)

• Increase/(decrease) in trade payables

(813)

970

• (Decrease)/increase in other payables and accrued expenses

1,452

(7,367) • Decrease in payables to affiliated companies 180 (415) • (Decrease)/increase in provisions

66

(79)

• Increase/(decrease) in deferred income

1,122

145 • Increase/(decrease) in amounts owed to depositors

604,318

1,880,182

Interest paid

(5,189)

(856)

Interest received

39,977

19,268 Unrealised currency translation gain

8,364

23,258

Pension reserve

–

–

Income taxes paid

(2,803)

(4,083) Increase in other liabilities

238

157

(Increase) in short and long-term investments

(162,414)

(408,300)

Decrease/(increase) in loans and advances to customers and affiliated companies

5,388

34,786

Net cash flow generated by/(used in) operating activities

511,369

1,528,500

Cash flows from investing activities:

Additions to property, plant and equipment 4.14 (941) (7,576) Additions to intangible assets 4.15 (120) –

Net cash flow (used in) investing activities

(1,061)

(7,576)

Net increase/(decrease) in cash and cash equivalents

510,308

1,520,924

Cash and cash equivalents:

Cash and cash equivalents as at January 1 4.23

3,341,034

1,820,110 Cash and cash equivalents as at December 31 4.23

3,851,342

3,341,034

Increase/(decrease) in cash and cash equivalents 510,308 1,520,924

ANNUAL REPORT 2016



4. Notes to the consolidated financial statements

4.1. General

4.1.1. Ownership

Citco Bank Nederland N.V. (“CBN”) is domiciled in Amsterdam and it was incorporated in Amsterdam on December 20, 1985. CBN is registered with the Trade Register of the Amsterdam Chamber of Commerce under number 33185291 pursuant to the terms of its Articles of Association as contained in the Deed of its Incorporation.

CBN is a wholly-owned subsidiary of Citco Bank Holding N.V., Curaçao, which is ultimately a wholly-owned subsidiary of Citco III Limited, Cayman Islands (the ultimate parent company).

The consolidated financial statements of CBN for the year ended December 31, 2016 comprise of CBN and its subsidiaries (together referred as “CBN Group”).

CBN Group consists of the following branches and subsidiaries:

Citco Bank Nederland N.V., Amsterdam, the Netherlands

o Branch Office, Dublin, Republic of Ireland

o Branch Office, Luxembourg, Luxembourg

Citco Bank Canada, Toronto, Canada

Citco Fund Services (Ireland) Ltd., Cork and Dublin, Republic of Ireland

The address of its registered office is as follows:

Telestone 8 – Teleport Naritaweg 165 1043 BW Amsterdam

4.1.2. Activities

Fund Administration and Investor Relations Services (‘CFS’)

CFS is an independent global leader in the administration of hedge funds and hedge fund of funds for fund managers of large pools of equities, bonds, money market, and derivative instruments. The companies within CFS offer a complete range of fund administration services including fund set up, independent accounting, and net asset value calculations, investor relations, and back-office services. CFS has built its capability and expertise over a period of more than forty-five years. In addition to the provision of fund administration services to both domestic and offshore hedge funds, companies within CFS offer a full front-to-back office service using a straight-through processing capability. This service combines the offering of a trading and portfolio management platform which is installed on the trader’s desktop, with full front, middle, and back-office support.

Experienced back-office staff members of the CFS companies, using the latest software technology, provide responsive investor relations services to the financial services industry worldwide. These services include investor verification and record-keeping. Reports are available online or in hard copy. Investor relations services on behalf of a fund are designed to fully support clients’ capital raising, distribution, and investor retention efforts.

These activities are performed by Citco Fund Services (Ireland) Ltd.

ANNUAL REPORT 2016



Banking and Custody Services

Drawing on an unrivaled breadth and depth of industry expertise, CBN Group provides access to the best breed process and technology that have set industry standards.

Utilizing the electronic platforms, institutional and hedge fund of funds clients can access the funds universe via CitcoFundsNet, an online real-time global funds platform. CBN Group offers the following services to its clients:

Custody and Trading

Offers unlimited access to online trading as well as tailored reporting.

Trustee Services

Provides trustee and custody services to Irish domiciled collective investment schemes (UCITS, Professional Investor Funds, and Qualifying Investors Funds).

Depository Oversight (Luxembourg)

The Citco Bank Nederland N.V. Luxembourg Branch acts as a depository on behalf of Luxembourg regulated funds.

Credit Facilities

Provides clients with short term bridge finance and foreign exchange facilities.

4.1.3. Group structure

An overview of CBN and its main subsidiaries as per December 31, 2016 is included in Appendix I of this report.

4.1.4. Currency

CBN uses the United States Dollar (USD) as its functional currency and the Euro (EUR) as its reporting currency. In accordance with IAS 21 the EUR/USD conversion rate that has been used for the balance sheet is the 2016 year-end rate of 1.0564 (2015: 1.0889) and for conversion of the profit or loss an average exchange rate for 2016 of 1.10371 (2015: 1.1049) is used.

4.1.5. Approval of the Board

These consolidated financial statements have been approved for issuance by the Supervisory Board on May 4, 2017.

ANNUAL REPORT 2016



4.2. Principal accounting policies

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and its interpretations adopted by the European Union. The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The historical cost is generally based on the fair value of the consideration given in exchange for assets. The principal accounting policies adopted are set out below. These have been applied consistently during the year.

Comparative figures

In order to align with current year’s presentation certain insignificant changes have been made to the comparative figures. These reclassifications have no effect on the total equity or the net result for the year.

4.2.1. New and amended standards adopted by the Group

Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization, prohibiting revenue-based depreciation methods and generally presumes that such methods are an inappropriate basis for amortizing intangible assets

The adoption of these amendments has had no impact on the disclosures or the amounts recognized in the consolidated financial statements.

Amendments to IAS 1 Disclosure Initiative, encouraging companies to apply professional judgment in determining what information to disclose in the financial statements.

The adoption of this amendment has had no material impact on the disclosures or the amounts recognized in the consolidated financial statements.

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations, adding new guidance on how to account for the acquisition of interest in joint operations that constitutes a business.

The adoption of this amendment has had no impact on the disclosures or the amounts recognized in the consolidated financial statements.

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment entities: applying the consolidation exception, clarifying the requirements when accounting for investment entities.

The adoption of this amendment has had no impact on the disclosures or the amounts recognized in the consolidated financial statements.

Annual Improvements to IFRSs 2012-2014 Cycle, minor amendments to a number of standards

The adoption of the improvements made in the 2012-2014 Cycle has had no material impact on the disclosures or the amounts recognized in the consolidated financial statements.

4.2.2. New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations have been endorsed but are not yet effective. Management is currently evaluating the impact of these new standards and interpretations but does not expect a material impact to the consolidated financial statements. Below is a listing of the upcoming new standards and interpretations:

IFRS 9 Financial Instruments, annual periods on or after January 1, 2018.

The standard sets out the principles for the recognition, derecognition, classification and measurement of financial assets and financial liabilities together with the requirements relating to the impairment of financial assets and hedge accounting.

ANNUAL REPORT 2016



The CBN Group is in the process of undertaking a detailed assessment of the impact on the financial asset classifications and the requirements for financial liabilities. The new hedging rules do not apply as the CBN Group does not apply hedge accounting. The new impairment model for financial assets is an expected credit loss model, which may result in the earlier recognition of credit losses.

IFRS 15 Revenue Contracts with Customers, annual periods on or after January 1, 2018.

The standard establishes when revenue should be recognized, how it should be measured and what disclosures about contracts with customers are needed.

At this stage, the CBN Group estimates that there will be no material impact on the amounts recognized in the consolidated financial statements.

Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses, annual periods on or after January 1, 2017.

The amendments clarifies how to account for deferred tax assets related to debt instruments measured at fair value.

Amendments to IAS 7 Disclosure Initiative, annual periods on or after January 1, 2017.

The amendment requires companies to disclose information about changes in their financial liabilities.

4.2.3. Use of estimates in the preparation of financial statements

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and application of judgment are inherent in the formation of estimates. Although these estimates are based on management’s best knowledge of current events and actions, actual results in the future could differ from such estimates and the differences may be material to the consolidated financial statements (reference is made to note 4.2.26)

4.2.4. Basis of consolidation

The consolidated financial statements incorporate the financial statements of CBN and enterprises controlled by CBN (its subsidiaries) made up to December 31, each year. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect returns through its power over the investee.

On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances between CBN Group entities are eliminated on consolidation.

4.2.5. Foreign currency translation

Transactions in currencies other than USD are initially recorded at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing at the end of the reporting period. Gains and losses arising on exchange are included in the consolidated income statement for the year.

During the year CBN Group hedged its exposure to certain foreign exchange risks by entering into forward exchange contracts.

ANNUAL REPORT 2016



On consolidation, the assets and liabilities of CBN Group’s non-USD operations are translated at the exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognised in other comprehensive income and transferred to CBN Group’s translation reserve. On disposal of an entity, such cumulative translation differences are recognised as gain or loss in the year in which the disposal takes place.

Goodwill and fair value adjustments arising on the acquisition of a non-USD entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.

4.2.6. Revenue recognition

Revenue comprises the value for the rendering of services in the ordinary course of the CBN Group’s activities. The CBN Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and the stage of completion of the transaction at the consolidated balance sheet date can be measured reliably. The amount of revenue is not considered to be reliably measured until all significant contingencies relating to the sale have been resolved. The CBN Group bases its estimates on historic results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is generated from contractual service agreements with the CBN Group’s clients. Custody and fund administration income is accrued on a time basis by reference to the Assets under Custody (‘AuC’) or Assets under Administration (‘AuA’) at the contractual basis points or at a minimum fee.

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Interest income is recognized as earned.

Fees and commissions are generally recognized on an accrual basis when the service has been provided.

Fees and commissions arising from negotiating of a transaction for a third party - such as the arrangement of the acquisition of shares or other securities or the purchase or sale of business which are recognized on completion of the underlying transaction. Other advisory and service fees are recognized based on the applicable service contracts, usually on a time-proportionate basis.

4.2.7. Interest income and expense

Interest income and expense are recognised in the consolidated income statement for all instruments measured at amortised cost, using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that is used to discount the estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

When calculating the effective interest rate, CBN Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and basis points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

ANNUAL REPORT 2016



4.2.8. Operating expenses

Operating expenses are calculated at cost and are recognised in the period to which they relate. Amortisation and depreciation charges on intangible (excluding intangible assets with indefinite lives (i.e. goodwill)) and tangible assets are based on cost and are calculated by the straight-line method over the estimated lives of the assets concerned.

4.2.9. Retirement benefit costs

Payments to defined contribution retirement schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where CBN Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement scheme.

4.2.10. Taxation

Income tax expense represents the sum of the current tax payable and deferred tax.

The current tax payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. CBN Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.

Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where CBN Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which CBN Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

ANNUAL REPORT 2016



4.2.11. Property, plant and equipment

Land held for use in the supply of services, or for administrative purposes, is stated in the statement of financial position at historical cost less any accumulated impairment. Land is not depreciated. Buildings held for use in the supply of services, or for administrative purposes, are stated in the statement of financial position at historical cost less any subsequent accumulated depreciation and any accumulated impairment. Machinery and equipment, leasehold improvements and other tangible fixed assets are stated at cost less accumulated depreciation and any accumulated impairment.

If an item of property and equipment is comprised of several major components with different useful lives, each component is accounted for separately.

Depreciation is charged so as to write off the cost over their estimated useful lives, using the straight-line method, on the following bases:

Machinery and equipment 3-10 years

Leasehold improvements Term of the lease

These assets are reviewed at each reporting period for indications of impairment. If an indication of impairment exists, the recoverable amount of the asset is estimated based on its fair value. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. In addition, the useful lives of these assets are also reviewed and adjusted, if appropriate, at each reporting period.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset. This is recognised in the consolidated income statement.

4.2.12. Intangible assets

Third-party software

Acquired software is capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on a straight-line basis over the assets useful life which typically ranges from three to five years. Where the carrying value of an asset is greater than its estimated recoverable amount the asset is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are recognised in the consolidated income statement.

For intangible assets with finite lives (software), the CBN Group reviews the carrying amounts at each end of the reporting period to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

4.2.13. Impairment

For tangible and intangible assets with finite lives, CBN Group reviews the carrying amounts at the end of each reporting period to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, CBN Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Intangible assets not yet available for use are tested for impairment at least annually, and wherever there is an indication that the asset may be impaired.

ANNUAL REPORT 2016



Recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate which reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

4.2.14. Financial instruments

Financial assets and financial liabilities are recognised in CBN Group’s consolidated statement of financial position when CBN Group has become a party (at trade date) to the contractual provisions of the instrument. Financial assets and liabilities are offset and the net amounts are reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the net asset and settle the liability simultaneously.

At any time, CBN Group has outstanding commitments to extend credit. These commitments take the form of unused overdraft facilities.

CBN Group provides financial guarantees and letters of credit to guarantee the performance of customers to third parties. These transactions have fixed limits and generally extend for a period of up to five years. Expirations are not concentrated in any particular period.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event, the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

The fair value of hedging derivatives is classified as a non-current asset or a non-current liability if the remaining maturity of the hedge relationship is more than 12 months and as a current asset or a current liability if the remaining maturity of the hedge relationship is less than 12 months.

Derivatives not designated into an effective hedge relationship are classified as a current asset or a current liability. Financial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of:

the amount of the obligation under the contract, as determined in accordance with IAS 37 - Provisions, contingent liabilities and contingent assets; and

the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policy as described in Note 4.2.6.

4.2.15. Trade receivables

Trade receivables are measured at amortised cost using the effective interest method, less any impairment.

ANNUAL REPORT 2016



4.2.16. Work in progress

Work in progress is valued at the estimated realisable value of services already performed but that are not yet invoiced. Work in progress is included within other receivables and accrued income.

4.2.17. Accrued income

Accrued income is stated at its nominal value. Accrued income includes fees for services provided but that are not yet invoiced.

4.2.18. Loans and advances to customers

Loans and advances originated by CBN Group include loans where money is provided directly to the borrower. Loans originated by CBN Group are initially recorded at fair value. Interest on loans originated by CBN Group is included in interest income and is recognised on an accrual basis. Fees and direct costs relating to loan origination, refinancing or to loan commitments are directly recorded in the consolidated income statement due to the short-term nature of the loans. The majority of loans bear floating interest rates implying no impairment risk that relates to any potential interest rate movement.

4.2.19. Allowance for credit losses

An allowance for credit losses is established if there is objective evidence that CBN Group will be unable to collect all amounts due on a claim according to the original contractual terms or the equivalent value. A “claim” means a loan, a commitment such as a letter of credit, a guarantee, a commitment to extend credit, or other credit product. An allowance for credit losses is reported as a reduction of the carrying value of a claim on the consolidated statement of financial position. Additions to the allowances for credit losses are made through value adjustments.

If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited as a reduction of the provision for loan losses.

Allowances for credit losses are evaluated at a counterparty-specific level.

A claim is considered impaired when management determines that it is probable that CBN Group will not be able to collect all amounts due according to the original contractual terms or the equivalent value. Individual credit exposures are evaluated based upon the borrower’s character, overall financial condition, resources and payment record, the original contractual term, exit possibilities and, where applicable, the realisable value of any collateral. The estimated recoverable amount is the present value of expected future cash flows, which may result from restructuring or liquidation. Impairment is measured and allowances for credit losses are established for the difference between the carrying amount and the estimated recoverable amount.

4.2.20. Investments in financial assets

Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the time frame established by the market concerned, and are initially measured at fair value, net of transaction costs.

Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’, ‘held-to-maturity investments’, ‘available-for-sale’ and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

ANNUAL REPORT 2016



Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Debt instruments that are classified as held-to-maturity, available-for-sale or loans and receivables recognise income on an effective interest rate basis.

Financial assets at fair value through profit or loss

Financial assets are classified as financial assets at fair value through profit or loss where CBN Group acquires the financial assets principally for the purpose of selling in the near term, the financial asset is a part of an identified portfolio of financial instruments that CBN Group manages together and has a recent actual pattern of short-term profit taking as well as all derivatives that are designated and effective hedging instruments. Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 4.32.

Where an entity designates financial assets into the financial assets at fair value through profit or loss category, it discloses:

(i) the nature of the financial assets;

(ii) the criteria for so designating such financial assets on initial recognition; and

(iii) how the entity has satisfied the requirements in lAS 39 for such designation, including a narrative description of the circumstances underlying the measurement or recognition inconsistency that would otherwise arise or of how designation at fair value through profit or loss is consistent with the entity’s documented risk management or investment strategy, as appropriate.

Held-to-maturity investments

Debt instruments for which CBN Group has the expressed intention and ability to hold to maturity are subsequently measured to redemption value over the remaining lifetime, less any impairment loss recognised to reflect irrecoverable amounts.

The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument, so that the revenue recognised in each period represents the effective interest rate on the investment.

Available-for-sale financial assets (“AFS”)

Certain shares and redeemable notes held by CBN Group are classified as being available-for-sale and are stated at fair value. Fair value is determined in the manner described in note 4.32. Gains and losses arising from changes in fair value are recognised directly in other comprehensive income and accumulated in revaluation available-for-sale assets reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets which are recognized directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in profit or loss for the period.

Dividends on available-for-sale equity instruments are recognised in profit or loss when CBN Group’s right to receive payments is established.

ANNUAL REPORT 2016



The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at reporting date. The change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in other comprehensive income.

Where CBN Group designates a financial asset into the available-for-sale category it discloses the criteria used in making the designation.

4.2.21. Cash and cash equivalents

Cash and cash equivalents comprise of cash and short-term deposits. Cash and cash equivalents are measured at amortised cost using the effective interest method, less any impairment.

4.2.22. Trade payables

Trade payables are measured at amortised cost using the effective interest method, less any impairment. CBN Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame.

4.2.23. Provisions

Provisions are recognised when CBN Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. If the effect is material, the provision is determined by discounting the expected future cash flows. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as finance expense. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

4.2.24. Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognised as assets of CBN Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Finance lease payments are allocated between interest expense and reduction of lease liability over the term of the lease. The interest expense is determined by applying the interest rate implicit in the lease to the outstanding lease liability at the beginning of each lease payment period.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

ANNUAL REPORT 2016



4.2.25. Consolidated statement of cash flows

Cash and cash equivalents for the purpose of the statement of cash flows include cash on hand, deposits available on demand with central banks and net credit balances on current accounts with other banks.

The statement of cash flows, based on the indirect method of calculation, gives details of the source of cash and cash equivalents which became available during the year and the application of these cash and cash equivalents over the course of the year.

4.2.26. Critical accounting judgments and key sources of estimation uncertainty

Provisions for loan losses are recognised based on periodic valuation of the loan portfolio and receivables. Considerable judgment is exercised in determining the extent of the loan loss and receivable provision (impairment) and includes review of individual loss cases. Changes in such judgments and analyses may lead to changes in the provisions for loan losses over time.

The identification of impairment and the determination of the recoverable amount are an inherently uncertain process involving various assumptions and factors, including the financial condition of the counterparty, expected future cash flows, observable market prices and expected net selling prices.

4.3. Financial risk management

4.3.1. Risk overview

In its operating environment and daily activities, CBN Group encounters various risks and constantly strives to mitigate related risks. In this process, CBN Group uses financial instruments including derivatives.

The main risks identified by CBN Group, related to its activities, are:

(a) Market risk, which includes three types of risk:

(i) Currency risk: The risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates;

(ii) Interest rate risk: The risk that the value of a financial instrument will fluctuate because of changes in market interest rates; and

(iii) Other price risk: Other than those arising from interest rate risk or currency risk this includes the risk that the value of a financial instrument will fluctuate because of factors related to the issuer of the financial instrument or by broad market movement.

(b) Credit risk: The risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.

(c) Liquidity risk: The risk that obligations cannot be met due to a mismatch between the maturity profiles of assets and liabilities.

(d) Operational risk: The risk that losses occur because of the failing in procedures and information systems and the inability of internal controls to detect these failings.

(e) Capital adequacy risk: Risk that the capital position is not consistent with CBN Group’s overall risk profile and strategy, and it therefore, holds an inappropriate level of capital against its minimum regulatory capital requirements.

ANNUAL REPORT 2016



Market risk

CBN Group’s policy is to reduce market risk to an acceptable level. Market risk embodies not only the potential for loss but also the potential for gain. In CBN Group the treasury instruments available to manage and reduce these risks have been approved, by the Management Board and Supervisory Board, and consistently applied. This policy serves to set a framework of limits and to ensure clearly defined limits within that framework. There has been no change to CBN Group’s exposure to market risks and the Management Board and CBN Group Risk Officer continuously reviews the manner in which it manages and measures the risk.

CBN Group’s business model has a strong correlation to the performance of the hedge fund industry. Depending on the investment strategy of the client the correlation differs. Increased performance by its clients has (in general) a similar effect on the performance of CBN Group. As a result CBN Group’s market risk is correlated with general market developments; a higher potential for higher gains in an upward market and lower gains in a declining market.

Currency risk

Currency risk is the current or prospective risk to earnings and capital arising from adverse movements in foreign exchange rates. CBN Group has and manages currency risk in two key areas:

1. Client Treasury activities: clients place forward exchange contracts with CBN Group, therefore CBN Group is exposed to fluctuations in foreign exchange rates on these contracts. In managing this risk CBN Group places offsetting forward exchange contracts with pre-approved counterparties with the same maturity. In addition clients are required to provide cash collateral in case of a margin call.

2. Operations: CBN Group is exposed to foreign exchange risk in respect of funding day-to-day activities and capital expenditure. In managing this risk management utilises forward exchange contracts for any imbalances or firm commitments for planned capital expenditure.

ANNUAL REPORT 2016



The table below summarises CBN Group’s exposure to currency risk translated to EUR:

EUR

USD

CHF

GBP

Other

Total

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

As at December 31, 2016:

Non-current assets

Property, plant and equipment –

6,910

–

–

–

6,910

Intangible assets 84

–

–

–

–

84 Long-term investments 331

161,905

–

–

–

162,236

Loans to affiliated companies –

4,046

–

–

3,521

7,567 Deferred tax assets 5,019

80

–

–

–

5,099

Current assets

Trade receivables 1,083

3,149

–

64

–

4,296 Other receivables and accrued income 15,767

48,130

1,555

1,228

2,206

68,886

Current tax receivable 1,029 – – – – 1,029 Receivables from affiliated companies 49

3,503

217

–

10

3,779

Short-term investments 225,115

2,297,541

–

–

–

2,522,656 Loans and advances to customers 3,177

1,532

1

2

5

4,717

Cash and cash equivalents 2,571,247

994,944

33,820

41,751

209,580

3,851,342

Total assets 2,822,901

3,521,740

35,593

43,045

215,322

6,638,601


Deferred tax liabilities 2,176

(91)

–

–

–

2,085 Other liabilities 685

–

–

–

–

685

Current liabilities

Trade payables 347

2

–

–

32

381 Other payables and accrued expenses 27,810

33,426

1,527

461

2,673

65,897

Current payables affiliated companies 312

555

–

160

–

1,027 Short-term deferred income 131

1,185

–

37

–

1,353

Current tax liabilities –

13

–

297

–

310 Amounts owed to depositors 910,805

5,036,438

33,751

98,399

208,470

6,287,863

Total liabilities 942,332

5,071,528

35,278

99,354

211,175

6,359,667

Net currency exposure 1,880,569

(1,549,788) 315

(56,309)

4,147

278,934

Off-balance sheet - guarantees to counterparties 1,888

–

–

–

–

1,888

Credit commitments –

286,649

–

–

–

286,649



3,150,253

41,139

143,266

212,648

6,002,473

Total liabilities 892,831

4,318,135

40,110

365,523

140,017

5,756,616

Net balance sheet position 1,562,336

(1,167,882)

1,029

(222,257)

72,631

245,857

Off-balance sheet - guarantees to counterparties 1,545

–

–

1,160

–

2,705

Credit commitments –

289,541

–

–

–

289,541

The off-balance sheet net position excludes forward exchange contracts placed on behalf of clients (see Note 4.31). Currency exposures are covered in USD functional currency.

The off balance sheet items include potential currency risks for CBN Group. However, it is uncertain whether off balance sheet items will lead to an actual exposure.

ANNUAL REPORT 2016



Interest rate risk

Interest rate risk is the current or prospective risk to earnings and capital arising from adverse movements in interest rates.

Interest rate risk is controlled through the monitoring of deposits and short-term investments with the use of the interest balance sheet and maturity profile. Funding is short term in nature and placements (exclusive of short-term investments) are also on an overnight basis. An analysis is made of the level of deposits being considered as the minimum ‘core deposits’ of CBN Group. The amounts available for short-term investments are calculated based on this deposit base.

The table below summarises CBN Group’s exposure to interest rate risk translated to EUR:

Up to 1 month

1-3 months

3-12 months

1-5 years

Over 5 years

Total

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000


Non-current assets

Long-term investments –

–

–

257

161,648

161,905


–

–

4,046

–

4,046

Current assets

Receivables from affiliated

companies 3,779 – – – – 3,779

Short-term investments 1,062,134

373,021

1,087,501

–

–

2,522,656

Loans and advances to customers 1,249

–

418

–

–

1,667


–

–

–

–

3,851,232


373,021

1,087,919

4,303

161,648

6,545,285

Current liabilities

Amounts owed to depositors 6,287,697

–

–

–

–

6,287,697

Total liabilities 6,287,697

–

–

–

–

6,287,697

Up to 1 month

1-3 months

3-12 months

1-5 years

Over 5 years

Total

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000


Non-current assets


–

–

284,034

158,020

442,054


–

230

–

–

230

Current assets

Receivables from affiliated

companies –

–

18,275

–

–

18,275


–

324,961

–

–

2,080,452

Loans and advances to customers 10,811 – 432 – – 11,243


–

–

–

–

3,341,034


–

343,898

284,034

158,020

5,893,288

Current liabilities


–

–

–

–

5,683,382


–

–

–

–

5,683,382

ANNUAL REPORT 2016



Interest sensitivity analysis

The sensitivity analysis has been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

Interest sensitivity is applicable in one key area for the CBN Group, Net Interest Margin. The net interest margin earned from clients is subject to any changes in the spread CBN Group earns on placements in the markets versus the interest paid to clients. The sensitivity analysis has been determined based on the exposure to interest rates for any applicable derivatives and non-derivative instruments during the reporting period. A 50 basis point increase or decrease is used when reporting interest rate risk in respect of CBN Group to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher and all other variables were held constant, CBN Group’s net profit before tax for the year ended December 31, 2016 would increase by EUR 13.4 million (2015: increase by EUR 13.4 million) and CBN Group’s equity as at December 31, 2016 would increase by EUR 11.2 million (2015: increase by EUR 11.0 million).

If interest rates had been 50 basis points lower or at minimal zero and all other variables were held constant, CBN Group’s net profit before tax for the year ended December 31, 2016 would decrease by EUR 10.9 million (2015: decrease by EUR 6.5 million) and CBN Group’s equity as at December 31, 2016 would decrease by EUR 9.1 million (2015: decrease by EUR 5.3 million).

Liquidity risk management

CBN Group manages liquidity risk by maintaining adequate reserves, banking facilities, by continuously monitoring forecast to actual cash flows and matching the maturity profiles of financial assets and liabilities. In addition, CBN Group manages any counterpart risk in respect of liquidity through its utilisation of the Counter Party Risk Monitoring System.

Liquidity risk table

The following table details CBN Group’s remaining contractual maturity for its non-derivative and derivative financial assets and liabilities. The table has been drawn up based on the undiscounted contractual cash flows of financial assets and liabilities based on the earliest date on which the CBN Group can be required to receive and pay, respective.

ANNUAL REPORT 2016



Up to 1 month

1-3 months

3-12 months

1-5 years Over 5

years Total

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000


Non-current assets


–

–

257

161,979

162,236


–

–

7,567

–

7,567

Current assets

Trade receivables 4,296 – – – – 4,296

Other receivables and accrued income 30,323

–

–

–

–

30,323

Receivables from affiliated companies 3,779

–

–

–

–

3,779


373,021

1,087,501

–

–

2,522,656


–

3,306

–

–

4,717


–

–

–

–

3,851,342

Derivative financial assets 35,184

2,202

1,177

–

–

38,563


375,223

1,091,984

7,824

161,979

6,625,479

Current liabilities

Trade payables 381

–

–

–

–

381

Other payables and accrued expenses 18,471

–

–

–

–

18,471

Payables to affiliated companies 1,027

–

–

–

–

1,027


–

–

166

–

6,287,866

Derivative financial liabilities 43,686

2,563

1,177

–

–

47,426


2,563

1,177

166

–

6,355,171

Off-balance sheet - guarantees to

counterparties 1,116 – 50 398 324 1,888

ANNUAL REPORT 2016



Up to 1 month

1-3 months

3-12 months

1-5 years Over 5

years Total

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000


Non-current assets

Long-term investments – – – 284,034 158,300 442,334

Loans to affiliated companies – – – 3,542 – 3,542

Current assets


–

–

–

–

3,806

Other receivables and accrued income –

16,451

–

–

–

16,451

Receivables from affiliated companies 1,741

–

18,275

–

–

20,016


519,604

396,134

–

–

2,080,452


–

3,319

–

–

14,130


–

–

–

–

3,341,034


2,736

471

–

–

48,385


538,791

418,199

287,576

158,300

5,970,150

Current liabilities

Trade payables –

1,194

–

–

–

1,194

Other payables and accrued expenses –

9,080

–

–

–

9,080

Payables to affiliated companies 847

–

–

–

–

847

Amounts owed to depositors 5,683,382 – – 166 – 5,683,548

Derivative financial liabilities 41,068 2,705 1,231 – – 45,004

Total liabilities 5,725,297 12,979 1,231 166 – 5,739,673

Off-balance sheet - guarantees to

counterparties 1,984 – – 398 324 2,706

ANNUAL REPORT 2016



Credit risk

Credit risk is the current or prospective risk to earnings and capital arising from a debtor’s failure to meet the terms of any contract with CBN Group or if a debtor otherwise fails to perform. Credit risk is monitored continuously by reviewing outstanding loans, temporary overdrafts and trade receivables by the account managers. New extensions of credit are subject to written credit memoranda that must be appropriate to the established criteria of the loan policy approved by the appropriate level of management. CBN Group mitigates credit risk by choosing only reputable banks as counterparty for liquid funds and derivative financial instruments.

CBN Group has implemented a real-time monitoring methodology which uses the fundamental view of the rating agencies on a counterparty’s probability of default through long term ratings, and the more reactive short-term view of the credit markets using credit default swap spreads to ensure that CBN Group only deals with highly regarded counterparties.

Loans to fund-of-funds clients are fully secured with a maximum loan to value ratio of 35% of eligible assets, usually by a pledge agreement covering the clients underlying securities portfolio held by CBN Group’s separate custody subsidiaries. Valuations of these underlying securities are made on a regular basis against industry norms and a legal entitlement to make margin calls on the client is in place. The loan portfolio is mainly focused on Europe and the offshore jurisdictions which attract quality mutual and hedge funds providers that are clients of CBN Group.

In addition, CBN Group is exposed to credit risk in relation to financial guarantees provided by CBN Group. CBN Group’s maximum exposure in this respect is the maximum amount CBN Group could have to pay if the guarantee is called on. As at December 31, 2016, an amount of EUR 1.9 million (2015: EUR 2.7 million) has been recognised as a contingent liability (see Note 4.29).

CBN Group has no intention to have significant ongoing concentration of credit risk, with exposure spread over a large number of counterparties and customers.

Operational risk

CBN Group has to process many complex transactions daily. To ensure the operational risk is adequately controlled, an extensive internal control framework has been set up. Also an extensive training program for staff has been introduced in view of the growth of CBN Group. In addition, the operational processes are certified under International Standard on Assurance Engagements (ISAE) No. 3402, Assurance Reports on Controls at a Service Organisation. Operational Risk Management frameworks have been established in all divisions and an Enterprise Risk Management framework has been implemented across CBN Group.

Capital adequacy risk

CBN Group’s risk management committee reviews the capital structure on a routine basis. As a part of this review the committee considers the cost of capital and the risks associated with each business line. Based on the recommendations of the committee, CBN will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt. CBN’s overall strategy remains unchanged from 2015.

To monitor the adequacy of its capital, the regulated banks within CBN Group apply ratios established by the relevant central banks. These ratios measure capital adequacy by comparing the entity’s eligible capital with its balance sheet assets, off-balance sheet commitments, and market and other risk positions at weighted amounts to reflect their relative risk.

The market risk approach covers the general market risk and the risk of open positions in currencies and debt and equity securities. Assets are weighted according to broad categories of notional risk, being assigned a risk weighting in accordance with the amount of capital deemed to be necessary to support them. As of January 1, 2008, in addition to the risk weighted assets calculation, CBN Group needs to take into account 15% of gross revenues as an additional capital requirement under Basel-II for operational risk.

ANNUAL REPORT 2016



Off-balance sheet credit-related commitments and forward exchange contracts and options-based derivative instruments are taken into account by applying different categories of conversion factors, designed to convert these items into balance sheet equivalents. The resulting equivalent amounts are then weighted for risk using the same percentages as for on-balance sheet assets.

Certain regulated subsidiaries may need approval from the regulator in order to be able to pay out dividends to the parent company.

The actual capital ratio of CBN Group for 2016 and 2015 meets the minimum standards in accordance with the supervisory requirements.

As at December 31, 2016, CBN Group holds a total capital for an amount of EUR 279 million. As at December 31, 2016, the total capital consists of the following elements:

EUR 000

Share capital 5,000 Additional paid-in capital 48,503 Translation reserve 45,114 Revaluation of AFS assets (367) Retained earnings 180,681 Total 278,931

The total of EUR 278.9 million is classified as Tier 1 capital.

Capital requirements (Pillar 1)

Each month, capital requirements are calculated according to broad categories of notional risk, being assigned a risk weighting in line with the amount of capital deemed to be necessary to support them as per the guidelines of the DNB.

As at December 31, 2016, the capital requirements amounted to EUR 61 million (2015: EUR 58 million) which consisted of EUR 42 million (2015: EUR 43 million) for credit risk, EUR 17 million (2015: EUR 15 million) for operational risk and EUR 1.4 million (2015: EUR 0.8 million) for foreign exchange risk.

The Pillar I minimum capital requirement for credit risk is based on the Basel II framework under the Standardised Approach. CBN Group uses the Basic Indicator Approach to calculate the capital allocated to Operational Risk.

Internal capital assessment (Pillar 2)

CBN Group’s management allocated EUR 29 million (2015: EUR 11 million) of capital to cover Pillar 2 risks.

ANNUAL REPORT 2016



4.4. Banking and Custody Services

2016 2015 EUR 000 EUR 000

Interest income and similar income 41,225

19,205

Interest expense and similar charges (6,172)

(867) Custody and trading-related income 6,213 6,656 Net income from dealing in foreign currencies 3,310

3,133

Payment fees and other 2,283

1,834 Other operating income 6,322

4,687

banking and custody services 53,181

34,648

4.5. Personnel expenses

2016 2015 EUR 000 EUR 000

Salaries and bonuses 51,699

50,588

Social security charges and taxes 4,979

4,883 Pension expenses 2,926

2,774

Related party personnel recharge, net (Note 4.37) (19,426)

(18,429) Other personnel expenses 627

1,751

Total personnel expenses 40,805

41,567

The average number of full-time employees for the year was 731 (2015: 749) of which 38 (2015: 39) were employed in the Netherlands.

In 2016 and 2015 no crisis income tax was imposed.

During 2016, there were 14 employees classified as Identified Staff (excluding the Management Board) due to the Dutch law on remuneration in financial organisations (“Wet beloningsbeleid financiële ondernemingen”) that was enacted on February 7, 2015. These employees were granted a variable remuneration of EUR 348 thousand in 2016 (2015: 364 thousand), of which EUR 141 thousand was deferred to future years (2015: no deferral of bonus).

In 2016, no employee received a remuneration of EUR 1 million or more. All variable remuneration is paid in cash.

Personnel expenses include the expenses associated with the Board of Directors. See Note 4.38 for Directors’ remuneration.

ANNUAL REPORT 2016



4.6. Office and administration expenses

2016

2015

EUR 000

EUR 000

Office and administration expenses 1,744

1,537 Related party office expenses, net (Note 4.37) 950

813

Total office and administration expenses 2,694

2,350

4.7. Travel expenses

2016

2015

EUR 000

EUR 000

Travel expenses 1,899

2,085 Related party travel expenses, net (Note 4.37) (470)

(930)

Total travel expenses 1,429

1,155

4.8. Professional services

2016

2015

EUR 000

EUR 000

Professional fees 935

2,434 Audit fees 280

299

Related party professional fees, net (Note 4.37) 17

(56) Total professional services 1,232

2,677

4.9. Depreciation and amortization

2016

2015

EUR 000

EUR 000

Machinery and equipment 207 289 Leasehold improvements 995 493

Total depreciation 1,202 782 Third-party software 34 1 Total amortization 34 1

Total depreciation and amortization 1,236 783

ANNUAL REPORT 2016



4.10 Other operating expenses

2016

2015

EUR 000

EUR 000

Group support service fee (Note 4.37) 3,844

3,049 Information technology service expense, net (Note 4.37) 224

3,072

Other related party expenses, net (Note 4.37) 35,681 37,056 Royalty fees (Note 4.37) 2,989

–

Other operating expenses 7,693

5,025

Total other operating expenses 50,431

48,202

4.11. Net finance (expense) / income

2016

2015

EUR 000

EUR 000

Foreign exchange (loss) / gain (1,447)

100 Interest income 457

433

Net finance (expense) / income (990)

533

All interest income and expenses are attributable to continuing operations.

4.12. Fees to independent auditors

2016

2015

EUR 000

EUR 000

Audit fees 252

268 Audit-related fees 28

31

Total fees 280

299

Deloitte Accountants B.V. provided audit services to the amount of EUR 188 thousand (2015: EUR 204 thousand). The remaining audit fees relate to services provided by other Deloitte member firms.

Audit-related fees consist mainly of attestation by other audit firms of internal controls in the context of the annual Service Organization Control 1 report. Tax fees consist of tax compliance and tax planning services. Other fees are related to risk management and regulatory compliance services, and other non-prescribed services.

ANNUAL REPORT 2016



4.13. Income tax expense

2016

2015

EUR 000

EUR 000

Current tax expense:

Current tax 2,713

2,398

Adjustments for prior years (306)

(122)

2,407

2,276 Deferred tax expense:

Current year 2,224

872 Adjustment for prior years 263

(2,039)

2,487

(1,166)

Total income tax expense 4,894

1,110

Reconciliation of effective tax rate

2016

2015

%

EUR 000

%

EUR 000

Net profit/(loss) before tax

29,752

17,851

Income tax using the domestic corporation tax rate 25.00

7,438

25.00

4,463

Effect of tax rates in foreign jurisdictions (8.45)

(2,514)

(8.30)

(1,482) Non-deductible expenses 0.12

37

0.81

144

Tax exempt revenues 0.35 104 Effect of non- capitalised tax losses (0.43)

(127)

(10.60)

(1,893)

(Over) provided in prior years (0.15)

(44)

(0.68)

(122) Income tax expense 16.44

4,894

6.23

1,110

As a group involved in worldwide operations, CBN Group is subject to several factors which affect its tax charge. This is principally due to the levels and mix of profitability in different jurisdictions, transfer pricing policies and tax rates imposed.

ANNUAL REPORT 2016



4.14. Property, plant and equipment

Machinery and equipment

Leasehold improvements

and other

Total

EUR 000

EUR 000

EUR 000

Cost:

As at January 1, 2016 3,981

8,459

12,440 Additions 3 938 941 Foreign exchange gain 116

269

385

Disposals –

–

– As at December 31, 2016

4,100

9,666

13,766

Accumulated depreciation:


2,910

5,431 Depreciation 1,074

128

1,202

Foreign exchange loss 128 95 223 Disposals –

–

–

As at December 31, 2015 3,723

3,133

6,856

Net carrying amount:

As at December 31, 2016 377

6,533

6,910



and other

Total

EUR 000

EUR 000

EUR 000

Cost:


2,266

4,514 Additions 1,642 5,934 7,576 Foreign exchange gain 257

259

516

Disposals –

–

–


8,459

12,440



2,163

4,311 Depreciation 289

493

782

Foreign exchange loss 250 254 504 Disposals –

–

–


2,910

5,431



5,549

7,009

ANNUAL REPORT 2016



4.15. Intangible assets

Third party software

EUR 000

Cost: As at January 1, 2016 – Additions 120 Foreign exchange loss – Disposals – As at December 31, 2016 120

Accumulated amortization: As at January 1, 2016 – Amortization charge 34 Foreign exchange loss 2 Disposals – As at December 31, 2016 36



Third party software

EUR 000

Cost: As at January 1, 2015 161 Foreign exchange gain 18 Disposals (179) As at December 31, 2015 –

Accumulated amortization: As at January 1, 2015 160 Amortization charge 1 Foreign exchange loss 18 Disposals (179) As at December 31, 2015 –


As at December 31, 2015 –

The results on disposals of intangible assets are not significant.

ANNUAL REPORT 2016



4.16. Long-term investment

2016

2015

EUR 000

EUR 000

Bonds held-to-maturity 161,648

441,804 Other investments held at fair value through profit or loss 331

280

Junior note available-for-sale 257 250

As at December 31, 162,236

442,334

Movement of long-term investments:

2016

2015

EUR 000

EUR 000

Balance as at January 1 442,334

348,168 Investments 12,911 94,166 Bonds held to maturity reclassified to short term investments (293,009)

–


442,334

The fair value of the bonds held-to-maturity is EUR 166 million (2015: EUR 446 million).

4.17. Loans to affiliated companies

The loans to affiliated companies are as follows:

2016

2015

EUR 000

EUR 000

Within three months to one year –

18,275 Within one to five years 7,567 3,542 More than five years –

–

Total 7,567

21,817

Analysis of lending by currency:

2016

2015

EUR 000

EUR 000

In USD 4,046

18,505 In CAD 3,521

3,312

Total 7,567

21,817

EUR 4,046 thousand (2015: EUR 18,505 thousand) of these loans granted to affiliated companies are interest bearing. The interest rate used is three month Libor rate plus two percent. EUR 4,046 thousand (2015: EUR 3,312 thousand) of these loans are non-interest bearing. The amount of the unused loans is EUR 3.5 million (2015: EUR 1.4 million).

EUR nil (2015: EUR 18,275 thousand) is included in “Receivables with affiliated companies”.

ANNUAL REPORT 2016



4.18. Deferred tax asset and liabilities

2016

2015

EUR 000

EUR 000

Capitalized tax losses 5,038

12,085 Deferred tax assets 61

189

Deferred tax liabilities (2,085)

(6,832)

Net deferred tax asset 3,014

5,442

The following are the major deferred tax assets and liabilities recognised by CBN Group and the related movements during the year:

Deferred tax liabilities

Capitalized tax losses and

deferred tax assets

Total

EUR 000

EUR 000

EUR 000

As at January 1, 2016 (6,832)

12,274

5,442 Increase 24

166

190

Utilization 4,723

(7,341)

(2,618)

As at December 31, 2016 (2,085)

5,099

3,014

As at January 1, 2015 (8,014)

11,948

3,934

Increase – 2,069 2,069 Utilization 1,182

(1,743)

(561)

As at December 31, 2015 (6,832)

12,274

5,442

4.18.1. Recognised deferred tax assets and liabilities

Assets Liabilities Net

2016

2015

2016

2015

2016

2015

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

EUR 000

Property and equipment 61

189

–

–

61

189 Other items –

–

(2,085)

(6,832)

(2,085)

(6,832)

Capitalized tax losses 5,038

12,085

–

–

5,038

12,085 Net deferred tax assets/(liabilities) 5,099

12,274

(2,085)

(6,832)

3,014

5,442

ANNUAL REPORT 2016



4.18.2. Movement in temporary differences during 2016 and 2015

Temporary differences

Capitalized tax losses

Total

EUR 000

EUR 000

EUR 000

As at January 1, 2015 (7,803)

11,737

3,934 Additions/(Utilizations) during the year 1,160

348

1,508

As at January 1, 2016 (6,643)

12,085

5,442

Additions/(Utilizations) during the year 4,619

(7,047)

(2,428)

As at December 31, 2016 (2,024)

5,038

3,014

A specification as at December 31, 2016 of the deferred tax assets and how they are used, shows as follows:

Jurisdiction Deferred tax

assets Carried forward

losses Carried forward

until at least Capitalized 2016

EUR 000

EUR 000

EUR 000

Netherlands 21

3,518

2020

3,539 Ireland 36 1,354 unlimited 1,390 Luxembourg – 166 unlimited 166 Canada 4

–

unlimited

4

61

5,038

5,099

Jurisdiction Deferred tax

assets Carried forward

losses Carried forward

until at least Capitalized 2015

EUR 000

EUR 000

EUR 000

Netherlands 21

8,420

2016

8,441 Ireland 168

3,665

unlimited

3,833


12,085

12,274

Deferred tax assets have been recognised to the extent that it is considered more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Where this is not the case, deferred tax assets have not been recognised, as set out below:

Tax losses

Tax losses

2016

2015

EUR 000

EUR 000

Gross deferred tax assets 8,895

16,371 Amounts not recognized (3,857)

(4,286)

Amounts recognized 5,038

12,085

Of the amount not recognized in respect of tax losses EUR 3.9 million (2015: EUR 4.0 million) has an expiration date through to 2023.

ANNUAL REPORT 2016



4.19. Trade receivables

2016

2015

EUR 000

EUR 000


3,806


3,806

Per December 31, 2016 no allowance has been made for estimated irrecoverable amounts from the services provided.

CBN Group does not hold any collateral over these balances.

The average age of these receivables is 44 days (2015: 41 days). No interest is charged on trade receivables which are past due.

4.19.1. Age of trade receivables past due but not impaired

2016

2015

EUR 000

EUR 000

Past due but not impaired:

< 30 days 2,501

2,383 30-60 days 1,274 321 60-90 days 147

456

90-120 days 47

631 > 120 days 327 15


3,806

In determining the recoverability of the trade receivables, CBN Group considers any change in the credit quality of the trade receivables from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debt.

4.20. Other receivables and accrued income

2016

2015

EUR 000

EUR 000


48,385 Accrued income 12,913

12,049

Other receivables 11,420

12,220 Interest receivable 5,053 3,348 Prepaid expenses 808

1,283

Net disbursements with affiliated parties 129

– Net disbursements with third parties –

154


77,439

Derivative financial assets relate to the unrealised results on forward exchange contracts; counter parties are clients and financial institutions. Reference is made to Note 4.31.

ANNUAL REPORT 2016



4.21. Short-term investments

2016 2015

EUR 000 EUR 000

Available-for-sale investments carried at fair value: - Commercial paper issued by financial institutions 939,985 807,356 - Certificate of deposits 366,474 314,980 - US treasury bills 189,314 367,339 - Money Market Fund 113,593 – Financial instruments held to maturity: - Variable Funding Notes 546,918 519,604 - Mezzanine notes 73,363 71,173 - US treasury bills 293,009 – 2,522,656 2,080,452

The remaining term is as follows: - one month or less 1,062,134 1,164,714 - three months or less 373,021 519,604 - more than three months and up to a year 1,087,501 396,134

As at December 31, 2,522,656 2,080,452

Commercial paper issued by financial institutions (available-for-sale) and certificate of deposits represents A+ to AAA rated paper. In order to avoid fluctuations with profit and loss, these investments have been classified as available-for-sale with revaluations recorded in other comprehensive income.

Financial instruments held-to-maturity include Variable Funding Notes (“VFNs”) and a mezzanine note. The VFNs are notes issued with a commitment amount. The outstanding amount of the notes can vary on a daily basis, hence the term “variable funding”. The notes yield a LIBOR plus margin on the drawn portion of the notes, and a commitment fee on the undrawn portion. The undrawn amount on the VFNs is EUR 251 million (2015: EUR 254 million).

The fair value of the bonds held-to-maturity is EUR 293 million.

ANNUAL REPORT 2016



4.22. Loans and advances to customers

2016

2015

EUR 000

EUR 000

Current account overdrafts 1,396

5,453 Current account overdrafts affiliated companies – 5,332 Term loans 3,321

3,345


14,130

The amount of the unused advances is EUR 13.8 million (2015: EUR 34.5 million).

2016

2015

EUR 000

EUR 000

The remaining term is as follows:

- one month or less 1,412

10,811

- more than three months and up to a year 3,305

3,319


14,130

As collateral, CBN Group accepts non-listed securities in the custody portfolio administered by CBN Group and/or affiliates of CBN Group. In order to determine the value of the eligible assets which can be considered suitable as collateral, the trading frequencies and liquidity of all securities are reviewed and their value discounted to reflect any potential impairment. A loan to value calculation is then performed on the available eligible assets in order to determine the maximum loan available. All significant loans are fully collateralised. Loans and advances to companies ultimately owned by the majority shareholder are disclosed in Note 4.37 Related party transactions.

4.23. Cash and cash equivalents

2016

2015

EUR 000

EUR 000

Cash held with central banks 2,465,214

1,983,879 Current accounts with other banks 633,598

820,787

Bank balances with affiliated companies 469,211

54,365 Deposits with other banks 283,254

481,945

Petty cash 65

58 As at December 31, 3,851,342

3,341,034

Bank balances earn interest at the respective short-term deposit market rates.

Banks are required to deposit a minimum average balance, calculated monthly, with the central banks, which is not available for use in the Group’s day-to-day operations. These deposits bear negative interest.

The Cash held with central banks increased in 2016 for solvency management purposes around year end.

ANNUAL REPORT 2016



4.24. Share capital

Authorised shares:

2016

2015

Number of shares 000


Ordinary shares of par value EUR 100 each 250

250

As at December 31, 250

250

Ordinary shares issued and fully paid:


EUR 000

As at January 1, 2016 and December 31, 2016 50

5,000

4.25. Provisions

Restructuring

EUR 000

Balance as at January 1, 2016 –

Provisions made during the year 66

Amounts used during the year –

Balance as at December 31, 2016 66

Current 66

Non-current –


Balance as at January 1, 2015 79

Amounts used during the year (79)

Balance as at December 31, 2015 –

Current –

Non-current –


Restructuring provision

A number of restructuring and cost reduction programs were initiated across CBN Group in order to improve client services and achieve efficiencies. Provisions for restructuring as at December 31, 2016 amounted to EUR 66 thousand.

ANNUAL REPORT 2016



4.26. Retirement benefits schemes

Defined contribution schemes

CBN Group pays premiums to defined contribution retirement schemes for all qualifying employees. Effective April 1, 2014, the Netherlands Scheme changed from a defined benefit plan to a defined contribution plan.

The assets of the schemes are held separately from those of CBN Group in funds under the control of trusts, foundations and the like. Where there are employees who leave the scheme prior to vesting fully in the contributions, the contributions payable by CBN Group are reduced by the amount of forfeited contributions.

The total cost charged to the consolidated income statement of EUR 2.9 million (2015: EUR 2.8 million) represents contributions payable to these schemes by CBN Group at rates specified in the rules of the schemes.

4.27. Other payables and accrued expenses

2016 2015 EUR 000 EUR 000

Derivative financial instruments 47,427 45,004 Taxes and social security contributions payable 9,529 9,337 Accrued expenses 4,936 4,389 Other payables 2,958 4,670 Interest payable 1,004 21 Lease incentives 43 41 As at December 31, 65,897 63,462

As part of a lease incentive certain subsidiaries received periods of free rent and furniture and leasehold development allowances from the lessor. As a consequence CBN Group amortises these allowances over the term of the lease.

CBN Group has financial risk management policies in place to ensure that all payables are paid within the permitted credit terms.

Derivative financial liabilities relate to the unrealised results on forward exchange contracts; counter parties are clients and financial institutions. Reference is made to Note 4.31.

ANNUAL REPORT 2016



4.28. Amounts owed to depositors

2016

2015

EUR 000

EUR 000

Demand deposits 5,782,546

5,267,320 Demand deposits of affiliated companies 85,949

405,532

Savings deposits –

47 Time deposits 419,110

10,346

Time deposits of affiliated companies 261

303

As at December 31, 6,287,866

5,683,548

Deposits are only short term and CBN Group pays interest based on the terms agreed with clients.

2016

2015

EUR 000

EUR 000


- on demand 5,868,495

5,683,382

- one month or less 419,205 – - longer than one year 166

166


5,683,548

4.29. Contingencies and commitments

The ultimate parent company has entered into a loan agreement with financial institutions. In this agreement CBN has been included as obligor for these facilities. The guarantee provided by CBN and its subsidiaries (Appendix II) is limited to the following:

I. The liability of each entity shall not exceed 10% of the Equity, and

II. The total aggregate liability of all entities shall not exceed the lesser of 20% of the Equity and USD 15 million.

Equity under the definition of the loan agreement is the equity of Citco Banking Corporation N.V. and its subsidiaries on a consolidated basis and has the meaning given to it in the Supervisory Regulation. Citco Banking Corporation N.V. is the parent company of Citco Bank Holding N.V. (see 4.1.1.)

As at December 31, 2016, CBN and its subsidiaries had commitments on guarantees with counter guarantees amounting to EUR 0.6 million (2015: EUR 1.7 million) and guarantees without counter guarantees amounting to EUR 1.3 million (2015: EUR 1.0 million).

During the reporting period, the proceeding in two countries against CBN and/or its subsidiaries continued. No provisions have been made in these financial statements as CBN Group’s management does not expect any material adverse effect on CBN Group’s financial position as at December 31, 2016 (see Note 4.36).

ANNUAL REPORT 2016



4.30. Operating lease arrangements

Lease payments under operating leases recognised in the result for the period amount to EUR 3.0 million (2015: EUR 3.7 million).

As at the end of the reporting period, CBN Group had outstanding commitments under non-cancellable operating leases, which fall due as follows:

2016

2015

EUR 000

EUR 000

Within one year 3,028

3,301 In the second to fifth years inclusive 11,350

12,079

After five years 10,045

6,417 As at December 31, 24,424

21,797

Operating lease payments represent rentals payable by CBN Group for certain of its office properties, office equipment and cars. Leases are negotiated for an average term of 7 years and rentals are fixed for an average of 5 years.

4.31. Derivative financial instruments

CBN Group utilises the forward exchange contracts for hedging and non-hedging purposes.

Contract/ notional amount

Fair value assets

Fair value liabilities

EUR 000

EUR 000

EUR 000


Forward exchange contracts 7,041,304 38,563 47,427


Forward exchange contracts 8,423,064

48,385

45,004

Forward exchange contracts represent commitments to purchase foreign and domestic currency, including undelivered spot transactions. Since these contracts are collateralised by cash or marketable securities, the credit risk is negligible.

The fair value of forward exchange contracts is revalued daily based on the applicable spot rates.

Derivative financial assets and liabilities relate primarily to two types of transactions undertaken by CBN Group:

1. Treasury activities- in earning additional interest margin over base rates, CBN Group undertakes forward foreign exchange contracts to arbitrage the difference between the margin earned on higher yielding currencies (i.e. Euro) versus the cost of undertaking the swap. These transactions are short-term basis and with a small number of highly rated counterparties.

2. Foreign exchange contracts- CBN Group places foreign exchange contracts on behalf of clients. However CBN Group does not take any positions on these transactions and immediately places a corresponding trade in the market for which we retain a spread. These services are only provided to clients with funds on deposits with CBN Group and funds retained in order to meet any margin calls. Again other than the margin earned, the asset and liability positions offset. Reference is made to Notes 4.20 and 4.27.

CBN Group occasionally enters into forward exchange contracts to mitigate the exposure on material items of capital expenditure. The fair value of the assets and liabilities is represented in the statement of financial position as derivative financial assets under “Other receivables and accrued income” and as derivative financial liability under “Other payables and accrued expenses”.

ANNUAL REPORT 2016



4.32. Fair value of financial instruments

4.32.1. Fair value measurements recognised in the statement of financial position

The following table provides at the end of the reporting period an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

December 31, 2016: Level 1

Level 2

Total

EUR 000

EUR 000

EUR 000

Financial assets at fair value through profit or loss Derivative financial assets – 38,563 38,563 Other investments – 331 331 Available-for-sale financial assets Commercial papers with financial institutions – 939,985 939,985 Certificate of deposits – 366,474 366,474 Money Market Fund – 113,593 – US treasury bills 189,314 – 189,314 Junior notes – 257 257

Total 189,314 1,459,203 1,534,923 Financial liabilities at fair value through profit or loss Derivative financial liabilities – 47,427 47,427

December 31, 2015: Level 1

Level 2

Total

EUR 000

EUR 000

EUR 000

Financial assets at fair value through profit or loss Derivative financial assets – 48,385 48,385 Other investments – 280 280 Available-for-sale financial assets Commercial papers with financial institutions – 807,356 807,356 Certificate of deposits – 314,980 314,980 Money Market Fund – 113,593 – US treasury bills 367,339 – 367,339 Junior notes – 257 250 Total 367,339 1,171,251 1,538,590 Financial liabilities at fair value through profit or loss Derivative financial liabilities – 45,004 45,004

ANNUAL REPORT 2016



During 2016 and 2015, there have been no transfers between Level 1 and Level 2. Additionally, the Group held no Level 3 investments during 2016 and 2015.

4.32.2. Valuation techniques and assumptions applied for the purpose of measuring fair value

The fair values of financial assets and financial liabilities are determined as follows:

Financial assets/ financial liabilities Fair value hierarchy Valuation technique(s) and key input(s)

Derivative financial instruments

Forward Exchange Contracts Level 2 Differences between the contract rate and a market quoted rate, adjusted to include credit risk or other factors as appropriate.

Available for sale financial assets

Commercial Paper Level 2 Quoted market prices or dealer quote for similar financial instruments

Certificate of deposits Level 2 Quoted market prices or dealer quote for similar financial instruments

US Treasury bills Level 1 Quoted bid prices in an active market

4.33. Categories of financial assets and financial liabilities

Financial assets 2016

2015

EUR 000

EUR 000


3,341,034 Fair value through profit or loss (FVTPL):

- Held for trading 38,563

48,385 - Designated as at FVTPL 331 280 Held-to-maturity investments 1,074,938

1,032,581

Loans and receivables 49,874

57,945 Available-for-sale financial assets 1,609,623

1,489,925


5,970,150

Financial liabilities 2016

2015

EUR 000

EUR 000


5,683,548 Fair value through profit or loss (FVTPL):

- Held for trading 47,427

45,004 Other liabilities 10,306

11,121


5,739,673

ANNUAL REPORT 2016



4.34. Financial assets and liabilities not carried at fair value

The following methods and significant assumptions have been applied in determining the fair values of financial instruments carried at cost:

(i) The fair value of assets and liabilities maturing within 12 months is assumed to approximate their carrying amount;

(ii) The fair value of demand deposits and savings accounts (included in due to customers) with no specific maturity is assumed to be the amount payable on demand at the end of the reporting period. Demand deposits and savings accounts bear floating interest rates, the fair value is assumed to approximate their carrying amount;

(iii) The fair value of variable rate financial instruments is assumed to be approximated by their carrying amounts and, in the case of loans, does not, therefore, reflect changes in their credit quality, as the impact of credit risk is recognised separately by deducting the allowances for credit losses; and

(iv) The fair value of fixed-rate loans and mortgages carried at amortised cost is estimated by comparing market interest rates when the loans were granted with current market rates offered on similar loans. Changes in the credit quality of loans within the portfolio are not taken into account in determining gross fair values, as the impact of credit risk is recognised separately by deducting the amounts of the allowances for credit losses.

4.35. Assets under Custody

CBN Group provides custody services to its clients, with respect to the security transactions. These services require CBN Group to maintain assets held under custody, which are not reported on the statement of financial position. As at December 31, 2016 CBN Group’s assets held under custody totaled EUR 52.0 billion (2015: EUR 49.7 billion).

4.36. Litigations

In 2016, various legal proceedings against The Citco Group Limited (“CGRP”) and/or its subsidiaries continued. The outcome of most of these proceedings is still largely uncertain therefore, it is not possible to estimate the financial effect on the Company. Management’s position on a favorable outcome has not changed and no additional provision is considered necessary as per December 31, 2016.

4.36.1. Claims and lawsuits relating to the Fairfield Funds

CBN and/or its subsidiaries have been named as defendants in various lawsuits relating to investment funds managed by the Fairfield Greenwich Group. These Fairfield-related lawsuits, the first of which was filed against CBN and/or its subsidiaries on January 12, 2009, arose out of the widely-reported Ponzi scheme that was operated by Bernard L. Madoff. The Fairfield Funds invested either directly or indirectly with Madoff and his firm, Bernard L. Madoff Investment Securities, LLC. Accordingly, the Fairfield Funds faced losses as a result of the Madoff Ponzi scheme.

These actions include:

A consolidated class action in the US, Anwar v. Fairfield Greenwich Limited. Settlement terms were agreed in August 2015, final class approval was granted and the case dismissed by Order of the Court in October 2015.

A derivative claim in New York State Court which is under appeal by the plaintiffs, having lost at first instance. On October 18, 2016, the Supreme Court of New York, Appellate Division dismissed the appeal and reinstated the original judgment in favor of the Citco companies (and PwC) defendants.

ANNUAL REPORT 2016



Certain investors in the Fairfield offshore funds who initiated proceedings against several Citco Companies before the Dutch Court in Amsterdam, opted out of the Anwar settlement in order to continue their action in the Netherlands. On March 22, 2017, the Court in Amsterdam dismissed the claims of the plaintiffs in their entirety and ordered them to pay costs. It is not yet known whether the plaintiffs intend to appeal the court decision.

4.36.2. Claim and lawsuit relating to the Fletcher Funds

On March 1, 2013, three Louisiana-based pension funds filed a Petition for Damages against CBN and/or its subsidiaries, and over ten other defendants. This petition asserts claims against CBN and/or its subsidiaries from work as administrator and custodian of Fletcher Income Arbitrage Fund and FIA Leveraged Fund. The petition does not specify the amount of damages the plaintiffs are seeking. On October 14, 2013, CBN and/or its subsidiaries moved to dismiss the claims asserted against it in their entirety. On September 30, 2016, the court in Louisiana finally ruled on the Citco defendants’ motions to dismiss by dismissing the claims against four of the eight Citco defendants named in the suit and also by reducing the number of claims against the remaining four Citco defendants from eight claims to four.

CGRP and its affiliates believe that there are meritorious defences to all these claims and will continue defend the lawsuits vigorously.

4.37. Related party transactions

Related party transactions are recognised on an arm’s length basis. CBN has a related party relationship with its parent company, fellow subsidiaries, associated companies and pension fund.

A summary of the transactions between CBN Group and related parties is as follows:

2016

2015

EUR 000

EUR 000

a) Companies ultimately controlled by the majority shareholder 418

432

b) Directors, officers and employees loans and current accounts 136 182 c) Guarantee provided by a company ultimately owned by the majority shareholder 2,957

2,957

a) CBN Group has granted fully pledged loans for a total amount of EUR 418 thousand (2015: EUR 432 thousand) to companies ultimately controlled by the majority shareholder. All loans have been granted at arm’s length conditions.

b) CBN has granted EUR 136 thousand (2015: EUR 182 thousand) to directors, officers and employees. All loans have been granted at arm’s length conditions.

c) A company ultimately controlled by the majority shareholder has provided a guarantee for an amount up to EUR 2,957 thousand (2015: EUR 2,957 thousand) for a loan granted.

ANNUAL REPORT 2016



The following services were provided by CBN Group to the parent company and/or affiliated companies:

2016

2015

EUR 000

EUR 000

Personnel (23,296)

(21,582)

Operational services (18,318)

(16,291) Finance services ** (13,212)

(7,239)

General and administrative services (4,160)

(4,553) Office rent * (243) (306) Group support services –

–

As at December 31, (59,229)

(49,971)

* Included in “Office rent” in the consolidated income statement. ** EUR 414K (2015: EUR 427K) of this amount is included in “Net finance income” in the consolidated income statement. The remainder is included in “Banking and Custody Services”.

The following services were provided by the parent company and/or affiliated companies to CBN Group:

2016

2015

EUR 000

EUR 000

Operational services 52,352

52,206 Royalty fee 2,989

–

General and administrative services 6,527

8,593 Personnel 3,870

3,153

Group support services 3,844

3,049 Office rent * 370 334 Finance services ** 8

13


67,348

* Included in “Office rent” in the consolidated income statement. ** Included in “Net finance income” in the consolidated income statement

CBN Group has the following balances with affiliated companies:

2016

2015 EUR 000 EUR 000 Receivables 1,099,056 674,139 Payables (41,006) (406,671) Net balance 1,058,050 267,468

Furthermore, CBN Group shares limited physical and functional assets and persons with companies belonging to the majority shareholder. The recharges related to these services are settled on a periodic basis.

ANNUAL REPORT 2016



4.38. Directors’ remuneration

Remuneration paid to the Managing Directors and Supervisory Board Directors during the year and current account balances were as follows:

2016

2015

EUR 000

EUR 000

Managing Directors (incl pension premiums) 638

644 Supervisory Board Directors 175

141


785

Executive: 2016

2015

EUR 000

EUR 000

Base Salary 555

550 Variable remuneration 46 59 Fringe benefits 4 5 Pension premiums 33

30


644

Non-Executive: 2016

2015

EUR 000

EUR 000

Base Salary 175

141 As at December 31, 175

141

The remuneration of the Managing Directors and Supervisory Board Directors is decided by the Shareholder.

One of the Managing Directors is earning a salary from CBN Group as well as an affiliated company. In 2016 and 2015 no crisis income tax was imposed.

4.39. Events after the reporting date

There were no events that have occurred subsequent to December 31, 2016 through to the date that the consolidated financial statements were signed which would require further adjustment or disclosure.

ANNUAL REPORT 2016



Signing of the consolidated financial statements

The financial statements were approved by the Board of Directors and authorised for issuance on, May 4, 2017 and are signed on its behalf by:

Managing Directors:

M. Leers

P.N. Symonds

F. van Proosdij

ANNUAL REPORT 2016



5. CBN Financial Statements

CBN abbreviated income statement for the year ended December

31, 2016

2016

2015

EUR 000

EUR 000

Results of participating interests 7,694

10,043

Other results 17,164

6,698

Net profit after tax 24,858

16,741

Attributable to:

Shareholder of CBN 24,858

16,741 Net profit for the year 24,858

16,741

ANNUAL REPORT 2016



CBN statement of financial position as at December 31, 2016

Note

2016

2015

EUR 000

EUR 000

Assets

Non-current assets

Property, plant and equipment 5.1

8

36

Intangible assets 5.2

84

–

Investments in subsidiaries 5.3

184,675

171,365

Long-term investments 5.4

78,996

306,106

Loans to affiliated companies

7,567

3,312

Deferred tax assets

5,069

276,399

12,112

492,931

Current assets

Other receivables and accrued income 5.5

45,518

55,274

Current tax receivables

182

180

Receivables with affiliated companies

1,719

4,028

Short-term investments 5.6

1,922,370

1,621,370

Loans and advances to customers 5.7

4,717

14,129

Cash and cash equivalents 5.8

3,376,225

5,350,731

2,800,872

4,495,853

Total assets

5,627,130

4,988,784

Equity and liabilities

Share capital 5.9

5,000

5,000


48,503

48,503

Translation reserve

45,114

36,589

Revaluation of AFS Assets

(367)

(59)

Retained earnings

180,681

155,824

Total equity attributable to the shareholder of the Company

278,931

245,857


Deferred tax liabilities

2,085

2,085

6,811

6,811

Current liabilities

Trade payables

34

–

Other payables and accrued expenses 5.11

51,697

51,390

Payables to affiliated companies

451

244

Provisions 5.10 66

–

Amounts owed to depositors 5.12 5,293,866

5,346,114

4,684,482

4,736,116

Total equity and liabilities

5,627,130

4,988,784

ANNUAL REPORT 2016



CBN statement of changes in equity for the year ended December 31, 2016



Translation reserve

Revaluation of


Total

EUR 000 EUR 000 EUR 000 EUR 000

EUR 000 EUR 000

Balance as at January 1, 2016 5,000 48,503 36,589 (59)

155,823 245,856

Net profit for the year – – – – 24,858 24,858 Other comprehensive income – – 8,525 (308)

– 8,217

Total comprehensive income – – 8,525 (308)

24,858 33,075

Total transactions with the shareholder – – – –

– –

Total equity attributable to the shareholder of CBN as at December 31, 2016 5,000 48,503 45,114 (367)

180,681 278,931

ANNUAL REPORT 2016



CBN Statement of changes in equity for the year ended December 31, 2015



Translation reserve

Revaluation of


Total

EUR 000 EUR 000 EUR 000 EUR 000

EUR 000 EUR 000

Balance as at January 1, 2015 5,000 48,503 13,320 110

139,082 206,015

Net profit for the year – – – – 16,741 16,741 Other comprehensive income – – 23,269 (169)

– 23,100

Total comprehensive income – – 23,269 (169)

16,741 39,841

Total transactions with the shareholder – – – –

– –

Total equity attributable to the shareholder of CBN as at December 31, 2015 5,000 48,503 36,589 (59)

155,823 245,856

ANNUAL REPORT 2016



Notes to the specific items of CBN statement of financial position

The financial statements of CBN included in this chapter are prepared in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Section 362 (8) of Book 2 of the Netherlands Civil Code allows companies that apply IFRS as adopted by the European Union in their consolidated financial statements to use the same measurement principles in their CBN financial statements. CBN has prepared these CBN financial statements using this provision. The accounting policies are described in these annual accounts.

The principles of valuation and determination of the results stated in connection with the consolidated financial statements are also applicable to CBN financial statements. Investments in group companies and investments in associates are initially recognised at cost and subsequently accounted for by the equity method of accounting. The accounting policies with regard to presentation and disclosures are in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Netherlands Civil Code.

Investments in subsidiaries are valued at net asset value determined on the basis of IFRS as adopted by the European Union.

In accordance with article 402 of Book 2 of the Netherlands Civil Code, CBN income statement is presented in an abbreviated form.

ANNUAL REPORT 2016



5.1 Property, plant and equipment



and other

Total

EUR 000

EUR 000

EUR 000

Cost:

As at January 1, 2016 22

1,303

1,325 Foreign exchange gain –

40

40

Disposals – – – As at December 31, 2016 22

1,351

1,373


As at January 1, 2016 20 1,269 1,289 Depreciation 2

34

36

Foreign exchange loss –

40

40 Disposals – – – As at December 31, 2016 22

1,343

1,365



8

8



and other

Total

EUR 000

EUR 000

EUR 000

Cost:

As at January 1, 2015 168

1,169

1,337 Foreign exchange gain 20

134

154

Disposals (166) – (166) As at December 31, 2015 22

1,303

1,325


As at January 1, 2015 151 1,125 1,276 Depreciation 17

14

31

Foreign exchange loss 18

130

148 Disposals (166) – (166)


1,269

1,289



34

36

The results on disposals of property, plant and equipment are not significant.

ANNUAL REPORT 2016



5.2 Intangible assets


EUR 000

Cost: As at January 1, 2016 – Additions 120 Foreign exchange gain – Disposals – As at December 31, 2016 120

Accumulated amortization: As at January 1, 2016 – Amortization charge 34 Foreign exchange loss 2 Disposals – As at December 31, 2016 36




EUR 000

Cost: As at January 1, 2015 161 Foreign exchange gain 18 Disposals (179)


Accumulated amortization: As at January 1, 2015 160 Amortization charge 1 Foreign exchange loss 18 Disposals (179) As at December 31, 2015 –

Net carrying amount: As at December 31, 2015 –

For intangible assets with finite lives (software), CBN reviews the carrying amounts at each end of the reporting period to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

The results on disposals of intangible assets are not significant.

ANNUAL REPORT 2016



5.3 Investments in subsidiaries

2016

2015

EUR 000

EUR 000


144,655 Share of results 7,694

10,043

Exchange differences 5,616

16,667

Balance as at December 31 184,675

171,365

The companies’ interests in its unlisted subsidiaries are as follows:

Country of Incorporation

Assets Liabilities Revenue Net profit Interest

held

EUR 000 EUR 000 EUR 000 EUR 000 %

December 31, 2016: Citco Fund Services (Ireland) Limited Ireland 105,626 15,564 81,003 1,568 100 Citco Bank Canada Canada 1,132,512 1,037,900 14,705 6,126 100

1,238,138 1,053,464 95,708 7,694

December 31, 2015: Citco Fund Services (Ireland) Limited Ireland 100,290 14,505 117,826 6,165 100 Citco Bank Canada Canada 1,104,876 1,019,296 11,189 3,878 100

1,205,166 1,033,801 129,015 10,043

5.4 Long-term investments

2016

2015

EUR 000

EUR 000

Bonds held-to-maturity 78,408

305,576 Other investments held at fair value through profit or loss 331 280 Junior note available-for-sale 257

250


306,106

Movement of held-to-maturity investments:

2016

2015

EUR 000

EUR 000


274,775 Investments 40,501 31,331 Bonds held to maturity reclassified to short term investments (236,280)

–

As at December 31 78,996

306,106

ANNUAL REPORT 2016



5.5 Other receivables and accrued income

2016

2015

EUR 000

EUR 000


47,570 Interest receivable 3,737

2,481

Other receivables 2,378

3,135 Accrued income, work in progress 966

1,423

Prepaid expenses 130

665

As at December 31 45,518

55,274

5.6 Short-term investments

2016

2015

EUR 000

EUR 000

Available-for-sale investments carried at fair value:

- Commercial paper issued by financial institutions 585,743

531,943

- Certificate of deposits 366,474

314,980 - US treasury bills – 183,670 - Money Market Fund 113,593

–

Financial instruments held to maturity:

- Variable Funding Notes 546,918

519,604

- Mezzanine notes 73,362 71,173 - US treasury bills 236,280

–

1,922,370

1,621,370



705,632

- three months or less 113,213

519,604 - more than three months and up to a year 1,030,771

396,134


1,621,370

Commercial paper issued by financial institutions (available-for-sale) and certificate of deposits presents A+ to AAA rated paper. In order to avoid fluctuations with profit and loss, these investments have been classified as available-for-sale with revaluations recorded in other comprehensive income.

Financial instruments held-to-maturity include Variable Funding Notes (“VFNs”) and a mezzanine note. The VFNs are notes issued with a commitment amount. The outstanding amount of the notes can vary on a daily basis, hence the term “variable funding”. The notes yield a LIBOR plus margin on the drawn portion of the notes, and a commitment fee on the undrawn portion. The undrawn amount on the VFNs is EUR 251 million (2015: EUR 254 million).

ANNUAL REPORT 2016



5.7 Loans and advances to customers

2016

2015

EUR 000

EUR 000

Current account overdrafts 1,396

5,452 Current account overdrafts with affiliated companies – 5,332 Term loans 3,321

3,345


14,129



10,810 - more than three months and up to a year 3,305

3,319


14,129

The amount of the unused advances is EUR 13.8 million (2015: EUR 34.5 million).

As collateral, CBN Group accepts non-listed securities in the custody portfolio administered by CBN Group and/or affiliates of CBN Group. In order to determine the value of the eligible assets which can be considered suitable as collateral, the trading frequencies and liquidity of all securities are reviewed and their value discounted to reflect any potential impairment. A loan to value calculation is then performed on the available eligible assets in order to determine the maximum loan available. All significant loans are fully collateralised.

5.8 Cash and cash equivalents

2016

2015

EUR 000

EUR 000

Cash held with central banks 2,465,214

1,983,879 Bank balances with affiliated companies 466,646

35,779

Deposits with other banks 232,979

286,335 Current accounts with other banks 211,321

494,821

Petty cash 65

58

3,376,225

2,800,872

Bank balances earn interest at the respective short-term deposit market rates.

Banks are required to deposit a minimum average balance, calculated monthly, with the central banks, which is not available for use in the Group’s day-to-day operations. These deposits bear negative interest.

The cash held with central banks increased in 2016 for solvency management purposes around year end.

ANNUAL REPORT 2016



5.9 Share capital

Authorised shares:

2016

2015



Ordinary shares of par value EUR 100 each 250

250


250

Ordinary shares issued and fully paid:


EUR 000

As at January 1, 2016 and December 31, 2016 50

5,000

5.10 Provisions

Restructuring x EUR 000

Balance as at January 1, 2016 – Additions 66 Amounts used during the year –


Balance as at January 1, 2015 79 Amounts used during the year (79) Unused amounts reversed during the year –


Current – Non-current –


Restructuring provision

A number of restructuring and cost reduction programs were initiated across CBN Group in order to improve client services and achieve efficiencies. Provisions for restructuring as at December 31, 2016 amounted to EUR 66 thousand.

ANNUAL REPORT 2016



5.11 Other payables and accrued expenses

2016

2015

EUR 000

EUR 000

Derivative financial instruments 45,920

45,003 Other payables 2,932

4,627

Taxes and social security contributions payable 990

1,189 Accrued expenses 938

548

Interest payable 917

23


51,390

CBN has financial risk management policies in place to ensure that all payables are paid within the permitted credit terms.

Derivative financial liabilities relate to the unrealised results on forward exchange contracts; counter parties are clients and financial institutions. Reference is made to Note 4.31.

5.12 Amounts owed to depositors

2016

2015

EUR 000

EUR 000

Demand deposits 4,747,797

4,255,418 Demand deposits with affiliated companies 126,697

418,368

Savings deposits –

47 Time deposits 419,110

10,346

Time deposits affiliated companies 261

303


4,684,482


- on demand 5,060,359

4,684,316 - one month or less 233,340 166 - longer than one year 166

–


4,684,482

ANNUAL REPORT 2016



5.13 Related party transactions

In the ordinary course of business, CBN enters into a substantial number of related party transactions on an arm’s length basis. CBN has a related party relationship with its parent company, fellow subsidiaries, associated companies and pension fund.

The following services were provided by CBN to affiliated companies:

2016 2015

EUR 000 EUR 000

Finance services (12,704) (6,798) Personnel (7,942) (7,531) General and administrative services (2,320) (3,166) Group support services (1,185) (759) Office rent (977) (1,067) Operational services (650) (679)

(25,778) (20,000)

The following services were provided by the affiliated companies to CBN:

2016

2015

EUR 000

EUR 000

General and administrative services 4,136

6,578 Group support services 3,844

3,049

Personnel 3,445

2,527 Office rent 293

230

Royalty fee 599

– Operational services 212 513 Finance services 8

14

12,537

12,911

CBN has the following balances with affiliated companies:

2016 2015

EUR 000 EUR 000

Receivables 1,096,393 639,335 Payables (47,249) (418,906)

Net balance 1,049,144 220,429

ANNUAL REPORT 2016



Signing of the financial statements

The financial statements were approved by the Board of Directors and authorised for issuance on May 4, 2017 and signed on its behalf by:

Managing Directors:

M. Leers

P.N. Symonds

F. van Proosdij

ANNUAL REPORT 2016



6. Other information

For an overview of the relevant legal structure including branch establishments, we refer to Appendix I and section 4.

Statutory rules concerning appropriation of result

The Articles of Incorporation of CBN provide that the appropriation of the net result for the year is decided upon the annual General Meeting of Shareholder.

Appropriation of result for the financial year 2015

The financial statements of 2015 were determined in the General Meeting of Shareholder held on May 11, 2016. The General Meeting of Shareholder determined the appropriation of result in accordance with the proposal being made to that end.

Proposed appropriation of result for the financial year 2016

Awaiting the decision by the shareholder, the net result for the year has been included in retained earnings.

Independent auditor’s report

Reference is made to the independent auditor’s report as included hereinafter.

ANNUAL REPORT 2016

Deloitte Accountants B.V. is registered with the Trade Register of the Chamber of

Commerce and Industry in Rotterdam number 24362853.

Member of

Deloitte Touche Tohmatsu Limited



7. Independent auditor’s report

To the shareholder and Supervisory Board of Citco Bank Nederland N.V.

REPORT ON THE FINANCIAL STATEMENTS 2016 INCLUDED IN THE ANNUAL REPORT

Our opinion

We have audited the financial statements 2016 of Citco Bank Nederland N.V., based in Amsterdam. The financial statements include the consolidated financial statements and the company financial statements.

In our opinion:

The consolidated financial statements included in this annual report give a true and fair view of the financial position of Citco Bank Nederland N.V. as at December 31, 2016, and of its result and its cash flows for 2016 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.

The company financial statements included in this annual report give a true and fair view of the financial position of Citco Bank Nederland N.V. as at December 31, 2016, and of its result for 2016 in accordance with Part 9 of Book 2 of the Dutch Civil Code.

What we have audited

The consolidated financial statements comprise:

1. The consolidated statement of financial position as at December 31, 2016.

2. The following statements for 2016: the consolidated income statement, the consolidated statement of comprehensive income, changes in equity and cash flows.

3. The notes comprising a summary of the significant accounting policies and other explanatory information.

Deloitte Accountants B.V. Gustav Mahlerlaan 2970 1081 LA Amsterdam P.O.Box 58110 1040 HC Amsterdam Netherlands Tel: +31 (0)88 288 2888 Fax: +31 (0)88 288 9737 www.deloitte.nl

ANNUAL REPORT 2016

Deloitte Accountants B.V. is registered with the Trade Register of the Chamber of

Commerce and Industry in Rotterdam number 24362853.

Member of

Deloitte Touche Tohmatsu Limited



The company financial statements comprise:

1. The company statement of financial position as at December 31, 2016.

2. The company abbreviated income statement 2016.

3. The notes comprising a summary of the accounting policies and other explanatory information.

Basis for our opinion

We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the “Our responsibilities for the audit of the financial statements” section of our report.

We are independent of Citco Bank Nederland N.V. in accordance with the “Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten” (ViO) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the “Verordening gedrags- en beroepsregels accountants” (VGBA).

We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Materiality

Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR 1,400,000. The calculated materiality represents the equivalent of 0.5% of equity. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.

Overview materiality

Materiality for the financial statements as a whole EUR 1,400,000

Benchmark for materiality Equity

Threshold for clearly trivial misstatements EUR 70,000

We agreed with the Management Board and Audit Committee that misstatements in excess of EUR 70,000, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.

Scope of the group audit

Citco Bank Nederland N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of Citco Bank Nederland N.V.

Our group audit mainly focused on significant group entities and branches.

We have:

Performed audit procedures ourselves at group entities Amsterdam and Luxembourg Branch of Citco Bank Nederland N.V.

ANNUAL REPORT 2016

3114393490/2017.017105.01/RM



Used the work of other auditors when auditing the Dublin branch of Citco Bank Nederland N.V.; Citco Fund Services (Ireland) Limited and Citco Bank Canada.

By performing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated financial statements.

Our key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Management Board and Audit Committee. The key audit matters are not a comprehensive reflection of all matters discussed.

These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Regulatory reporting

Description of key audit matter How our audit addressed the key audit matter

Citco Bank Nederland N.V. is regulated by various regulators in respective jurisdictions in which it operates. Regulatory requirements may change over time which require management to align internal procedures to adhere to these changes. The risk exists that Citco Bank Nederland N.V. may not comply with regulatory requirements.

We have assessed communication between Citco Bank Nederland N.V. and its regulators. In addition we have assessed regulatory examination reports and met with regulators and management to get an understanding of current regulatory requirements, and assess Citco Bank Nederland N.V.’s compliance to these requirements.

Deferred corporate income tax positions


Citco Bank Nederland N.V. operates in multiple jurisdictions all with differing tax regimes with complex cross-border arrangements. Citco Bank Nederland N.V. has recorded deferred tax assets and deferred tax liabilities in relevant jurisdictions. These tax positions may not be appropriately recorded or may not be realized in the future.

Deferred tax assets primarily result from tax losses carried forward. These losses can be carried forward for a remaining period up to 9 years in the Netherlands and for an indefinite period in Ireland. Based on the forecasted profits, management concluded that these losses should be recoverable within this set period. We considered the appropriateness of management’s assumption and estimates in relation to the deferred tax positions, challenging those assumptions and considering advice received by management from external advisors to support their position. For more information on the deferred tax position reference is made to note 4.18.

ANNUAL REPORT 2016

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Claims and litigations


During its normal course of business Citco Bank Nederland N.V. may be exposed to claims and litigations. Citco Bank Nederland N.V. continued to be involved in one significant legal proceeding. As part of our audit, we considered the claims and litigations important given the related subjectivity.

We have assessed management’s position to provide for or disclose these claims and litigations and have reviewed supporting documentation obtained from Citco’s internal and external lawyers, focusing on the likelihood of occurrence and the possibility for quantification. For more information on claims and litigations reference is made to note 4.36.

Counterparty credit risk


Citco Bank Nederland N.V. holds assets which are exposed to counterparty credit risk. Such assets mainly include balances with correspondent banks and investments in commercial paper, certificates of deposits, treasury bills and variable funding notes. Assessing the valuation of these assets requires judgment taking into account relevant credit risk.

We have considered whether relevant controls have been put in place by management which ensure timely identification of credit risk deterioration of counterparties. We have evaluated and challenged the key considerations used by management in assessing credit risk. We further focused on the adequacy of the disclosures about credit risk. For more information on credit risk reference is made to note 4.3.1.

REPORT ON THE OTHER INFORMATION INCLUDED IN THE ANNUAL REPORT

In addition to the financial statements and our auditor’s report, the annual report contain other information that consists of:

Supervisory Board’s Report.

Management Board’s Report.

Other information as required by Part 9 of Book 2 of the Dutch Civil Code.

Based on the following procedures performed, we conclude that the other information:

Is consistent with the financial statements and does not contain material misstatements.

Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.

ANNUAL REPORT 2016

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We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.

By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.

Management is responsible for the preparation of other information, including the Supervisory Board’s Report and Management Board's Report in accordance with Part 9 of Book 2 of the Dutch Civil Code, and the other information as required by Part 9 of Book 2 of the Dutch Civil Code.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Engagement

We were engaged by the Management Board and Audit Committee as auditor of Citco Bank Nederland N.V. December 12, 2016, as of the audit for year 2002 and have operated as statutory auditor ever since that date.

DESCRIPTION OF RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS

Responsibilities of management and Supervisory Board for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting framework mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.

Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.

The supervisory board is responsible for overseeing the company’s financial reporting process.

Our responsibilities for the audit of the financial statements

Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

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We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.:

Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.

Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.

Evaluating the overall presentation, structure and content of the financial statements, including the disclosures.

Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or the risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial information or specific items.

We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.

We provide the Management Board and Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Management Board and Audit Committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.

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Deloitte Accountants B.V.

Signed on the original: R.J.M. Maarschalk

ANNUAL REPORT 2016



8. Appendices

Appendix I: List of main subsidiaries

The consolidated financial statements include the financial statements of CBN and its directly and indirectly owned subsidiaries, which include the following main companies. Unless indicated otherwise, the companies are wholly-owned.

Banking and custody services

Citco Bank Canada Canada

Fund services

Citco Fund Services (Ireland) Limited Ireland

Appendix II: List of guarantors

Below is a list of entities as referred to in note 4.29.

Citco Fund Services (Ireland) Limited Ireland

Documents

ANNUAL REPORT 2016 - Citco · functions. The recruitment of professionals has focused on individuals who either recently graduated or have gained valuable expertise in the market