Report Audit 2004

Ralph Victor

Description

2004 Report of the Audit and ComplianceCommitteeAnnual Report 200422004 Report of the Audit and Compliance Committee I. Introduction 3II. Activity during 2004 41. Financial information 42. The Auditor 53. The Group's internal control systems 64. Internal auditing 75. Compliance and the prevention of money-laundering 76. Corporate governance 77. Measures proposed by supervisors 88. Informing the Board and Shareholders' Meeting. Evaluation session. 8III. Conclusion 8Appendix 9Annual Report 200432004 Report of the Audit andCompliance CommitteeI. Introduction - Propose to the Board the appointment of the Auditor,the conditions of its contract, the scope of itsThe Bank's Audit and Compliance Committee was professional mandate and, where appropriate, revokeestablished in 1986 as the Audit Committee, and since or renew the appointment, always ensuring thethen has evolved considerably in its tasks and the way Auditor’s independence and paying attention to thoseit operates. Within the Board, and in line with the circumstances or issues that could put it at risk andrecommendations of the Olivencia and Aldama reports, any other matters related to auditing procedures.this Committee carries out activities that mainly consistof evaluating the information and accounting To perform these tasks, the Audit and Complianceverification systems, ensuring the independence of the Committee supervises the Internal Auditing services,Auditor* and reviewing the ...

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2004 Report of the Audit and Compliance Committee

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Annual Report 2004

2004 Report of the Audit and Compliance Committee I. Introduction II. Activity during 2004 1. Financial information 2. The Auditor 3. The Group's internal control systems 4. Internal auditing 5. Compliance and the prevention of money-laundering 6. Corporate governance 7. Measures proposed by supervisors 8. Informing the Board and Shareholders' Meeting. Evaluation session. III. Conclusion Appendix

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2004 Report of the Audit and Compliance Committee

I. Introduction

The Bank's Audit and Compliance Committee was established in 1986 as the Audit Committee, and since then has evolved considerably in its tasks and the way it operates. Within the Board, and in line with the recommendations of the Olivencia and Aldama reports, this Committee carries out activities that mainly consist of evaluating the information and accounting verification systems, ensuring the independence of the Auditor* and reviewing the Company's and the Group's internal control and compliance systems.

The Audit and Compliance Committee is regulated by the 18th Additional Regulation of the Securities Market Act and articles 40 of the corporate by-laws and 14 of the Regulations of the Board of Directors, whose texts are available in the appendix to this report.

Its main responsibilities are:

- Inform Shareholders' Meetings about matters within its powers.

- Review the Company's and the Group's financial statements for them to fulfil the legal requirements and correctly apply the generally accepted accounting principles, and report on proposals to change the accounting principles and criteria suggested by Management.

- Review, before it is disclosed, annual and other periodical financial information sent to markets and supervisory bodies.

* See II.2 The Auditor below.

Annual Report 2004

- Propose to the Board the appointment of the Auditor, the conditions of its contract, the scope of its professional mandate and, where appropriate, revoke or renew the appointment, always ensuring the Auditor’s independence and paying attention to those circumstances or issues that could put it at risk and any other matters related to auditing procedures.

To perform these tasks, the Audit and Compliance Committee supervises the Internal Auditing services, which report to the Board, and is fully acquainted with the financial information process and the internal control systems.

The Audit and Compliance Committee evaluates its own work during the year.

The Committee's members in 2004 were:

Mr. Manuel Soto Serrano, Chairman Mr. Fernando de Asúa Álvarez, Member Mr. Rodrigo Echenique Gordillo, Member Mr. Abel Matutes Juan, Member Mr. Luis Alberto Salazar-Simpson Bos, Member Mr. Ignacio Benjumea Cabeza de Vaca, Secretary (non-Member)

Mr. Juan Abelló Gallo was a member of the Committee until December 15, 2004 when he resigned as a Director of Santander and hence left the Committee. There were no other changes during the year.

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The five members of the Committee are all non- executive and four of them, including the Chairman, independent Directors.

The Committee's members, who all have the necessary experience to carry out their functions, have direct and constant contact with the external and internal auditors and with the Company's executives in order to have adequate information and knowledge about the Group.

The Committee's Chairman is the Bank's fourth Vice-Chairman, an independent Director who has ample experience of financial information, accounting and auditing.

The Committee's Secretary, who can speak but not vote, is the Secretary of the Board and the Secretary General. This facilitates fluid and effective relations with the Group's various units who must collaborate with or provide information to the Committee.

The Committee –which, according to its regulations, meets as many times as it is called by agreement of the Committee or of its Chairman and, at least, four times a year– met thirteen times during 2004. Each member dedicated an estimated 60 hours to the Committee.

The regulations establish that the Committee is validly constituted when at least half of its members attend directly or are represented, and agreements are adopted by majority. Representation can be delegated in another member, but no one can hold more than two representations.

The Committee is empowered to receive assistance from any member of the management team or employee.

It is also empowered to request the assistance of experts, applying for these purposes the regime set out in Article 24 of the Regulations of the Board.

II Activity during 2004

This report summarises the Committee's activities in 2004, grouping them on the basis of its various functions.

1. Financial Information

The Committee paid particular attention to reviewing the Company's and the Group's annual financial statements, as well as their quarterly statements before they were approved by the Board and disclosed. The Committee received documents and held meetings with the Group's Head of Financial Accounting and members of his team in order to know, sufficiently in advance, the process for drawing up and consolidating the quarterly statements and the individual and consolidated annual statements, verify they are consistent with the applicable accounting principles and thus ensure they properly reflect the Company's and the Group's equity and financial situation. The Committee reported favourably on the definitive texts of both the annual and the quarterly statements.

As regards reviewing the financial statements and the processes followed for drawing them up, the Committee, as well as the normal tasks of other years, reported on the Group's financial statements at June 30, 2004 which were specifically drawn up for the acquisition of Abbey National plc. The Committee also reviewed other documents of a recurrent nature which were drawn up by the Bank regarding 2003, such as the Informative Annual Prospectus registered with the Spanish National Securities Market Commission on July 13, 2004 or the 20-F report registered with the US Securities and Exchange Commission (SEC) on July 15, 2004. The Committee analysed in the 20-F report the rules applied to reconcile the Group's accounts into the US GAAP and knew in details its result.

During the year, the Committee received information from the Auditor and from the Head of Financial Accounting on the adoption of the new International Accounting Standards (IAS) and the International Financial Reporting Standards (IFRS) and on how the Group was adapting to them. The Committee was informed at its meeting on February 19, 2004 of the establishment in the Group of a reporting system based on the new rules. This system combines three elements: internal training, creation of specialised technical committees and specific procedures. At its meeting on July 22, 2004, the Group's Head of Financial Accounting reported on the progress made in adopting the IAS and the IFRS by the European Union. At its meeting on November 16, 2004, the Head of Financial Accounting informed the Committee of the draft of the Bank of Spain's new circular on public and reserved financial information rules and models of financial statements. He explained in detail the

Report of the Audit and Compliance Committee

consequences for the Bank, especially regarding provisions and pensions. In addition, the Committee held a meeting on May 5, 2004 which was solely dedicated to studying the potential impact of the new rules on credit entities.

2. The Auditor

The Committee, at its meeting on April 22, 2004, proposed the re-election of the Auditor (*) (Deloitte, S.L. ), whose mandate expired in the previous period, as the Auditor for the individual and consolidated accounts of the period ending December 31, 2004. The Board agreed to submit the proposal to the Shareholders' Meeting held on June 19, 2004, which approved it. Deloitte, S.L. was thus the Auditor in 2004 of the accounts of Grupo Santander. The Committee also approved the decision of Banco Santander Chile to continue to use Price Waterhouse Coopers to audit its consolidated sub-group for the year ending December 31, 2004, while taking adequate measures to assure co-ordination, through meetings with the Group's Auditor, who reviewed the work of the external auditor in Chile in order to ensure its quality and the financial information system of the cited Chilean subgroup.

The Auditor attended all the Committee's meetings during 2004, thereby reaffirming the task set for the Committee by the Regulations of the Board to act as the communication channel between the Board and the Auditor. The meetings in 2004 included working sessions dedicated to obtaining detailed information on the planning and advances in their work. The Committee paid particular attention to detailed analysis with the Auditor of the Auditor’s report on the 2004 individual and consolidated accounts and financial statements of the Group at June 30, 2004. The rigorous approach of Grupo Santander in drawing up the financial statements and the careful monitoring of the applicable accounting rules and principles enabled, one more year, the Auditor to issue an opinion that the 2004 annual accounts: i) duly and faithfully reflect in all significant ways the financial situation of the Group at December 31, 2004, as well as the individual and consolidated results registered during the period; ii) contains the necessary and adequate information for its proper interpretation and understanding, in accordance with generally accepted accounting principles and rules, and that, except for that which is explained below, are consistent with those applied in the previous period. The abovementioned lack of consistency refers exclusively to the Bank of Spain's non-authorization,

Annual Report 2004

applied throughout the banking sector, of the charging against reserves of commitments stemming from early retirements agreed by the Bank or other companies of the Group, as was done in the 2003 financial year. The Committee obtained from the Auditor confirmation that it had been given full access to all the necessary information, having received proper cooperation from the Group's teams.

The Committee also held meetings with the Auditor to be informed in detail of the process in which the new International Financial Reporting Standards (IFRS) were drawn up. As in 2003, the Group presented the “20-F report” referred to in the previous section on 2003 and adjusted to the requirements of the Sarbanes-Oxley Act which includes the certifications envisaged in sections 302 and 906. This required the establishment, again in 2004, of the Disclosure Committee responsible for verifying the procedures related to the gathering and preparation of financial and other types of information, incorporated in said document.

The Committee proposed to the Board the fees for the Auditor and the scope of its professional mandate.

The fees for audits performed by the Deloitte worldwide organisation charged to Grupo Santander amounted in 2004 to€9.4 million, and€2.6 million for other reports required by legal and tax regulations emanating from the national supervisory bodies of the countries in which the Group operates, reviewed by Deloitte worldwide organization. In addition, the non- recurring fees charged by Deloitte worldwide organization for the work required by Spanish and British norms in the process of acquiring Abbey came to EUR 5.4 million.

The Audit and Compliance Committee does consider there are not any objective reasons to question the independence of our Auditor. For this reason, and with reference to the criteria established by the O'Malley Panel and in other relevant international documents to evaluate the effectiveness of the external audit, the Committee verified that:

(*) In 2004, the Auditor Deloitte & Touche España, S.L. changed its name to Deloitte, S.L.

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1. The relation between the fees for non auditing items and those for auditing was 0.23 times for the main auditing firm we use.

As a reference, the fees on average in 2003 for services other than auditing, according to the information on the main US financial entities whose shares are listed on organised markets, was around 0.79 times the fees for auditing

The services contracted with our Auditor meet the requirements of independence set out in Act 44 of November 22, 2004 on Financial System Reform Measures, as well as in the 2002 Sarbanes-Oxley Act, assumed by the SEC, and in the Regulations of the Board.

2. The relative importance of the fees of one client in the firm's total: Grupo Santander has adopted the criterion of not using those firms where the fees charged it would be more than 2% of the firm's total revenues.

The fees charged to Grupo Santander in 2004 by Deloitte worldwide organisation, including those incurred for the acquisition of Abbey, represented less than 0.15% of its total fees. In the case of Spain, the fees charged to the Group's Spanish units were less than 1.5% of the revenues of our main auditor.

3. The Group's internal control systems

The objectives of the Sarbanes-Oxley Act, approved in July 2002 and applied to all companies registered in the US securities markets, include fostering and favouring transparent and reliable financial statements, for which the responsibility of the Management of these companies is increased and the review and systemisation of internal controls to ease the risks associated with financial reporting is promoted.

The Group's entities registered in the US securities market are obliged to meet the requirements set out in sections 302, 404 and 906 of the above mentioned Act, among others.

The Bank has had in the last two years the certifications envisaged in sections 302 and 906 of the Sarbanes-Oxley Act, and is doing preparatory work to fulfil section 404 under which annual reports for years ended after July 15, 2006 registered with the SEC must include a report on internal control that contains a finding on the responsibility of Management on the effectiveness and structure of internal control and of the reporting processes and the certification of the external auditing firm of the evaluation carried out.

This project, coordinated in the Group by the Financial Accounting department in cooperation with Internal Auditing, which will supervise the degree of fulfilment, is completed with an audit of the Group's internal controls by the Auditor.

It is a very complex and wide-ranging project in the Group as the Auditor is examining more than 100 companies in 9 countries. However, it starts from some control procedures which are already established by the Group in its units in Spain (certified by AENOR), which means that the Auditor is focusing on reviewing said procedures and identifying, where appropriate, the shortcomings it finds in both Spain as well as in other countries.

It should be pointed out that the Auditor's cooperation in the process of adapting to the demands of section 404 is not regarded by US regulations as an activity that affects its independence as it is auditing and not consulting work.

The Committee acts as a forum for debate and decisions in this process to which the Auditor and the various areas of the Group involved report on a timely basis.

4. Internal Auditing

The Committee has been informed in detail by the Management of Internal Auditing of each of the phases: a) planning the work to be conducted during the year; b) regular reports on the activities carried out during the year and of the conclusions reached; and c) monitoring the recommendations and suggestions contained in these reports.

The Internal Auditing services presented reports to the Committee, having managed their activities during the year with objectives that cover many aspects of the banks, companies, treasuries, loan portfolios and branch networks that comprise the Group, as well as controlling compliance with the Code of Conduct in the Securities Market and with the regulations on money-laundering.

During 2004 the most senior executives in Internal Auditing reported on matters in eight of the thirteen meetings of the Committee.

5. Compliance and Prevention of Money Laundering

The Committee held meetings during 2004 with executives of these areas, who explained the existing procedures and bodies in the Group to develop these functions and their implementation, both general as well as in the different units.

As well as the information on these general aspects, various circumstances occurred which gave rise to information or specific appearances of executives before the Committee.

Report of the Audit and Compliance Committee

The Committee reported favourably on and submitted for approval to the Board the Regulations of Customer Attention and Defence, which were approved at the Board's meeting on October 20, 2004. The Regulations of Customer Attention and Defence complies with Act 44 of November 22, 2003 on Financial System Reform Measures, the Royal Decree 303 of February 20, 2004 on the Regulations of Commissions for the Defence of Financial Services Customers, and the Order of the Ministry of Economy 734 of March 11, 2004 on the Departments and Services of Customer Attention and Defence of the Customer of Financial Institutions, which regulates the procedures to respond customer complaints.

The Regulations will be applied to the Group's Spanish finance companies (unless they have approved, in accordance with the applicable regulations, their own) and are subject to verification by the Bank of Spain as the Bank's supervisory body.

In addition, the Committee devoted specific attention to the obligations stemming from the Sarbanes-Oxley Act.

Lastly, it is also important to point out that the Group's Compliance Unit has been developing since 1999 all the processes related to approval of new products and services offered to customers via the New Products Committee. As a result of the publication by the National Securities Market Commission (“CNMV”) of the Guide for Marketing Financial Products, the Audit and Compliance Committee submitted for approval to the Bank's Executive Committee the Procedures Manual for the sale of financial products to retail customers which was approved at its meeting on February 23, 2004. The Bank was the first entity to adhere to the Guide and obtain the green light from the “CNMV” for its Procedures Manual.

6. Corporate Governance

Annual Report 2004

In its session of March 16, 2005, and in accordance with Article 14.4 of the Regulations of the Board, the Committee drew up the report which evaluated the efficiency and compliance with the Company's rules and procedures of governance. The conclusion of this report was very positive, valuing not only the aforementioned rules and procedures but also the information included in the annual public report.

Detailed information on the many aspects is contained in the Annual Report on Corporate Governance for 2004 (drawn up in accordance with Act 26/2003, Ministerial Order ECO/3722/2003 and Circular 1 of March 17, 2004 of the “CNMV”), as well as in the section on Corporate Governance included in the 2004 Annual Report. Both documents were reviewed by the Committee at its meetings on March 16, 2005, before being approved by the Board.

The Regulations of the Board were reviewed by the Committee and approved by the Board at its meeting on March 29, 2004. Of note among the new Regulations which replace those initially approved on June 24, 2002 are those on the duties of Directors contained in Article 27. The text is more detailed on these duties, in accordance with Articles 127, 127 bis, 127 ter and 127 quater of the Companies Law and Article 114.3 of the Securities Market Act, all drawn up on the basis of Act 26/2003 on the Transparency of Listed Companies.

Also noteworthy in corporate governance is the information the Committee receives on the progress made by the Group in this field, especially in 2004: (i) the information on the activities undertaken to adapt the contents of the corporate website to the requirements of the Transparency Act and its subsequent developments; and (ii) the report for 2004 by the independent rating agency Deminor which assigned the Bank a rating of 8 out of 10 in corporate governance.

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7. Measures proposed by supervisors

The Committee is also responsible for reviewing fulfilment of the measures and ensuring they are consistent with the reports or inspection activities of the supervisory and control bodies.

The Committee received information on the reports issued by the supervisory authorities of Spain and of other countries where the Group operates, having verified the appropriate putting into practice of the proposed measures.

8. Informing the Board and Shareholders' Meeting. Evaluation session.

The Committee's Chairman gave a detailed report to the Board on its activities on two occasions during 2004, describing its work.

The Chairman informed the ordinary Shareholders' Meeting on June 19, 2004 about matters in its area of responsibility in a document that was reviewed beforehand by the Committee and about which its Chairman informed the Board at its meeting the day before the Shareholders' Meeting. It is anticipated that the Chairman of the Committee will present a new report at the next Shareholders' Meeting expected to be held on June 17 or 18, 2005, in first and second call, respectively.

As already mentioned, the Committee drew up a report which evaluated the efficiency and compliance with the Company's governance rules and procedures and the information that the Board must approve and include within the annual public documents. The Committee's Chairman presented the report to the Board.

These documents include this report on the Committee's activities during 2004 which was approved by the Committee at its meeting on March 16, 2005 and by the Board on March 28, 2005.

III. Conclusion

During 2004, the Audit and Compliance Committee properly fulfilled the responsibilities assigned it by the corporate by-laws and the Regulations of the Board. The Committee verified the quality and transparency of the Group's regular financial information and the effectiveness of its internal control systems.

The Committee also expressed its satisfaction at the work carried out by the Internal Auditing services in supervising the compliance, effectiveness and efficiency of the internal control systems as well as the reliability and quality of the Group's financial information.

The proposed appointment of the Auditor, the monitoring of its work, the review of its conclusions and the evaluation of its independence by the Committee strictly complied with the rigorous policies established. The positive conclusions of the Auditor on Grupo Santander's financial statements and the parent Bank's underscored the quality of the Group's financial information and internal control systems.

Lastly, in the area of compliance, the Committee felt satisfied with the internal processes established to ensure correct compliance with the prevailing regulations and the policies, rules and internal procedures of the Group, thereby ensuring that Management responded quickly and properly to the measures proposed by the supervisors.

Appendix

Report of the Audit and Compliance Committee

Article 40 of the corporate Bylaws and 14 of the Code of Conduct of the Board of Directors

Article 40 of the corporate Bylaws:

“An Audit and Compliance Committee shall be established within the Board of Directors. This Audit and Compliance Committee shall consist of a minimum of four and a maximum of seven Board Members appointed by the Board of Directors. The majority of the members of the Audit and Compliance Committee should be non-executive Directors, the latter being understood as those directors who do not hold management responsibilities within the Company or the Group and restrict their activity to the supervisory and internal decision-making functions characteristic of Directors.

The Chairman of the Audit and Compliance Committee shall be elected by the Board of Directors from among the non-executive Board Members referred to in the preceding paragraph, and should be replaced every four years, being eligible for re-election after one year has elapsed since ceasing to hold office. The Audit and Compliance Committee shall also have a Secretary, such office being held by the General Secretary of the Company, who, if not a Board Members, may participate in but not vote at meetings of the Audit and Compliance Committee.

The Audit and Compliance Committee shall have, as a minimum, the following responsibilities:

I. To report, through its Chairman and/or Secretary, to the General Meeting of Shareholders on matters raised by shareholders included within its sphere of competence.

II. To propose to the Board of Directors, for submission to the General Meeting, the designation of the Auditor as referred to in article 204 of the Companies Law.

III. To supervise the internal auditing services.

IV. To be aware of the financial reporting process and internal control systems.

Annual Report 2004

V. To maintain a relationship with the Auditor in order to receive information on any questions which could place the independence of the latter at risk and any other questions relating to the implementation of the external audit process, and to maintain with the Auditor all other communications contemplated in the legislation covering external auditing and technical auditing standards.

The Audit and Compliance Committee shall meet as often as convened by resolution of the Committee itself or its Chairman and at least four times per year. Any member of the Company's executive team or staff required to do so shall be obliged to attend meetings of the Committee and to offer it their co-operation and access to the information at their disposal. The Auditor may also be required to attend such meetings. One of the meetings of this Committee shall necessarily be devoted to assessing the efficiency of and compliance with the rules and procedures of governance of the Company and to preparing the information to be approved by the Board and to be included as part of the annual public documentation.

The Audit and Compliance Committee shall be validly constituted by the attendance (present or represented) of at least half its members, and shall adopt its resolutions by the majority vote of those attending (present or represented). The Chairman shall have the casting vote. Members of the Committee may delegate their representation to another member, but no member may assume more than two such representations in addition to his own. The resolutions of the Audit and Compliance Committee shall be recorded in a minutes book, which shall be signed in each case by the Chairman and the Secretary.

Through its Chairman, the Audit and Compliance Committee shall report to the Board of Directors at least twice per year.

The Audit and Compliance Committee may likewise obtain external advice.

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The Board of Directors is competent to implement, increase and complete the regulations concerning the composition, conduct and sphere of competence of the Audit and Compliance Committee with respect to anything not specified in these Bylaws, respecting what is contemplated herein and by the law.”

Article 14 of the Rules of Procedure of the Board - The Audit and Compliance Committee

1. The Audit and Compliance Committee shall consist of a minimum of four and a maximum of seven Directors, all of whom shall be external or non- executive and with a majority representation of independent Directors. In any event, it should be chaired by an independent Director who also has knowledge of and experience in accounting techniques and principles.

2. The Audit and Compliance Committee shall have the following functions:

a) To report, through its Chairman and/or Secretary, to the General Meeting of Shareholders on questions raised by shareholders at the latter on matters within its area of responsibility.

b) To propose the designation of the Auditor, its conditions of appointment, sphere of professional responsibility and if applicable, the revocation or non-renewal of such appointment.

c) To review the Bank and Group accounts, monitor compliance with legal requirements and the correct application of generally accepted accounting principles, and report on proposals to modify accounting principles and criteria suggested by management.

d) To supervise the internal auditing services.

e) To be aware of the financial reporting process and internal control systems.

f) To act as a communications channel between the Board and the Auditor, assess the results of each audit and the responses of the management team to its recommendations, and act as a mediator in the event of any discrepancies between the former and the latter with respect to applicable principles and criteria in the preparation of the financial statements. In short, it shall endeavour to ensure that the accounts finally drawn up by the Board are presented to the General Meeting without reservations or qualifications in the Auditor's report.

g) To supervise the compliance of the audit contract, ensuring that the opinion on the annual financial statements and the main contents of the audit report are worded clearly and precisely.

h) To ensure the independence of the Auditor, paying attention to any circumstances or questions which could place such independence at risk and any others relating to the implementation of the account auditing process. To receive information and maintain with the Auditor those communications contemplated by external auditing legislation and the technical regulations applicable to auditing. Specifically, to verify what percentage of the total income of the auditing firm is represented by the fees paid for all items, and the term served by the partner in charge of the audit team which provides its services to the Bank. Mention shall be made in the Annual Report of the fees paid to the auditing firm, including information concerning fees paid for professional services other than auditing.

i) To review, prior to its publication, the financial information which in addition to the annual accounts is provided regularly to markets and their supervisory bodies, and to ensure that such information is prepared in accordance with the same principles and practices as the financial statements.

Report of the Audit and Compliance Committee

j) To supervise the observance of the Group's Code of Conduct in the Securities Markets, the Manuals and procedures for the prevention of money-laundering and in general, the Bank' rules of governance and compliance, and to make the necessary proposals for any improvements. In particular, it is the responsibility of the Committee to receive information, and if applicable, issue reports on disciplinary measures applied to members of Senior Management.

k) To review the observance of the action and measures which are the result of inspection reports or proceedings by official supervisory and control authorities.

l) To be aware of, and where applicable, respond to, any initiatives, suggestions or complaints presented by shareholders with respect to the scope of responsibility of this Committee and which are submitted to it by the General Secretary of the Bank.

m) To report on any proposed modifications to these Rules of Procedure prior to their approval by the Board of Directors.

3. The internal auditing services of the Bank will report to the Board of Directors. Nevertheless, the internal auditing services of the Bank shall attend to the reporting requests it receives from the Audit and Compliance Committee in exercising its responsibilities.

4. The Audit and Compliance Committee shall meet as often as called by resolution of the Committee itself or its Chairman and at least four times per year. Any member of the Bank's executive team or personnel required to do so shall be obliged to attend meetings of the Committee and to offer it their co-operation and access to the information they have available. The Auditor may also be required to attend such meetings. One of the meetings of this Committee shall necessarily be devoted to assessing the efficiency of and compliance with the rules and procedures of governance of the Bank and to preparing the information to be approved by the Board and to be included as part of the annual public documentation.

Annual Report 2004

The Audit and Compliance Committee shall be validly constituted with the attendance, in person or by representation, of at least half its members. It shall adopt resolutions by the majority vote of members attending, personally or by representation, its Chairman having the casting vote. The members of the Committee may delegate their representation to another member; however, no member may hold more than two such representations in addition to his own.

5. The Audit and Compliance Committee may obtain advice from outside sources under the terms of article 24 of these Rules of Procedure.

6. Through its Chairman, the Audit and Compliance Committee shall present a report to the Board of Directors at least twice per year.

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