We are securties services

Anual report 2018Rising to the challenge

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Annual report 2018

Key figures2018 2017

Operating business

Member institutions Number 1,288 1,344

Securities accounts Number (millions) 4.7 4.8

Transactions Number (millions) 26.3 24.4

Results

Net fee and commission income EUR (millions) 239,6 222,4

Administrative expense EUR (millions) 210,6 204,7

Result from ordinary activities EUR (millions) 25,0 27,0

Net income for the financial year EUR (millions) 17,1 22,1

Total assets EUR (millions) 526,8 952,9

Achieving more together: we are securities services 4 - 7

Letter from the Board of Management 8 - 9

Partnership: working together for the best solution 10 - 13

A look at the market: guided by best practices 14 - 17

Innovation: inspiration for the securities services of tomorrow 18 - 21

Management report

Annual financial statements 24 - 43

Assets 44 - 45

Income statement 46 - 47

Note to the 2018 annual financial statements 48 - 56

Country-by-country reporting 57

Independent auditor‘s report 58 - 63

Report of the Supervisory Board 64 - 65

Members of the Advisory Board 66

Annual report 2018Deutsche WertpapierService Bank AG

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Annual report 2018

Achieving more together: we are securities services

„ Nam experaepudae se voluptat offictus ace runtia pratinihil modic tecero optat ipsam, te zam ius.“

As a leading securities services provider, we face new challenges on a daily basis. That‘s because securities traded on Germany‘s financial market represent the core element around which our services revolve. We ensure stability for millions of transactions, proactively continue to develop existing processes and support our clients in changing times – in all three sectors of the German banking industry.

What will tomorrow‘s securities business bring? We ask ourselves this question every day. And every day, we work to improve upon existing services and to develop new ones – so that our clients can benefit from state-of-the-art, future-proof securities services. We use every available resource to that end: our

long-standing experience as a specialised service provider for institutions in every one of Germany‘s three banking sectors, our know-how from hundreds of successfully executed migration projects and our position as a neutral negotiating partner with legislators and financial authorities.

We know: competitive pressure is rising for our clients, while end clients‘ willingness to pay is dropping. That applies not only to the securities business. In this challenging situation, our aim is to bolster our clients‘ bottom line as best as possible through our services. We do not simply implement requirements, we search for the optimal solutions. There is no such thing as “carrying on as before“ in this era of increasing digitalisation. What is needed is new ideas and exchanges of ideas between peers – that‘s what we are all about.

Three out of four banks trust our services386 direct clients from every banking sector trust us to carry out and refine their securities processes. No other service provider has such a broad-based expertise when it comes to the requirements of the German financial market. In addition, we serve 902 cooperative banks which are linked via DZ Bank. This makes us a “system-relevant institution“. This designation is only reserved for institutions which have demonstrated that they can process millions of stable, secure securities services.

We want our clients to be able to focus on what matters during turbulent times. That‘s why we assume all process steps in the area of securities settlement – from order routing through to back-office services. Efficiency and cost-effectiveness are always at the forefront – not only at our offices in Frankfurt, Düsseldorf and Munich but also at our subsidiaries in Halle (dwp Service GmbH) and Budapest (dwp Software Kft).

More than efficient settlementIdeas on how to cut costs are the first step in any outsourcing of activities. And we support our clients in achieving precisely those cost savings. In addition, we offer them added security and process stability. But we aren‘t satisfied to simply take on existing processes: we look for opportunities to increase our clients‘ economic success. We use Data Intelligence, a virtual room for analysing large volumes of data, to discover unrealised potential and develop proposals to optimise performance and improve client relationships.

“Nobody knows the German market like we do – that ma-kes us a strong partner for developing future-proof securities services.“

Overcoming hurdles, making progress

together: We aim to stand by our clients, even in

turbulent times.

Achieving more together: we are securities services

Dr. Heiko Beck | CEO

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Annual report 2018

Markus Neukirch | Mitglied des Vorstands

Achieving more together: we are securities services

“From order routing through to back-office services, we offer all securities services so that our cli-ents can concentrate on their core business.“

Dialogue with clients and policymakersHow do we have to tailor our services for our clients? What additional services come into question? What regulatory requirements must be complied with?

Answers to these and similar questions form the focal point of our advice to clients. We are in dialogue with policymakers on their behalf in order to help shape regulations in Germany‘s securities business for the long term. As a neutral representative, we provide our clients from every sector with a voice to negotiate with national and international legislators and financial authorities.

Not only regulatory requirements can be implemented more cost-effectively if they are bundled. The implementa-tion of standardised securities processes via our systems platform, WP2, enables our clients to benefit from synergies which help to reduce costs. In order to be able to continue to offer the best IT solutions in the future, we have organised our infrastructure into modules, thus rendering it faster, more flexible and easily expandable.

“We cover three quarters of the German market. This enables us to bundle services efficiently and

to cut costs permanently.“

Not only regulatory requirements can be implemented more cost-effectively if they are bundled. The implementa-tion of standardised securities processes via our systems platform, WP2, enables our clients to benefit from synergies which help to reduce costs. In order to be able to continue to offer the best IT solutions in the future, we have organised our infrastructure into modules, thus rendering it faster, more flexible and easily expandable.

Shaping the future togetherThe financial services market is challenging. And the requirements imposed on us have also increased. In order to be successful together with our clients, we are therefore constant-ly searching for new solutions for their securities business. We integrate future-facing technologies that increase efficiency, cut costs and create new opportunities. We are ready to tackle new challenges. We are securities services.

Looking forward: getting fit for the

future means taking a proactive approach.

What sets us apart from the rest

▪ Specialisation on securities services

▪ Service provider for all three of Germany‘s banking sectors

▪ Neutral representative for regulatory issues

▪ 100 percent track record for migration activities

▪ Fully regulated by Federal Financial Supervisory Authority (BaFin) and Deutsche Bundesbank

Markus Neukirch | Member of the Board of Management

Thomas Klanten | Member of the Board of Management

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Annual report 2018

Dr. Heiko Beck Thomas Klanten Markus Neukirch

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Ladies and gentlemen,

Letter from the Board of Management

2018 was another year of great challenges for the financial industry. The environment remained difficult, with regulatory requirements on the rise, interest rates remaining low and stock market movements driven main-ly by political developments. In such a market environ-ment, credit institutions need a service provider on their side that can offer them proactive support – as a partner, an advisor and as a solutions provider. In times of rising complexity and uncertainty, it is essential to show securities business players new paths forward and offer them a sense of orientation. The aim is to work together to overcome market adversities and become fit for the future. For where there are risks, there also lie opportuni-ties: as a leading securities services provider in Germany, we are taking increasing advantage of digitalisation and the associated new ways of working so that we can help to ensure our clients’ successes for the long term. Partner-ship, innovation and a keen eye on market developments are the cornerstones of our approach.

We are pleased that many of our clients were able to generate growth in the commission business and in asset management. We must continue to build upon these successes, because pressure on costs and income remains high. As a longstanding partner for our clients, we are familiar like no other with the challenges they face. Our services therefore continue to revolve around efficiency and stability. However, in order to successfully shape the future for our clients, our work does not cease here: we look ahead and observe market trends so that we can leverage them early on for our clients. We are constantly developing our range of activities and offer services which generate profits. And we assist our clients in structuring their securities services in the best way possible.

In 2018, this approach helped us to win over new clients: Germany’s largest savings bank, Hamburger Sparkasse (Haspa), has been using our custody service offering

since November 2018. The successful migration in this area underscores our extensive expertise in outsourcing even partial processes – a solid foundation on which Haspa can decide whether or not to fully migrate to our full service offering. In the summer of the previous year, we also won over Einlagensicherungsbank, a special bank that assists the National Association of German Banks with the deposit protection fund. And the private bank ODDO BHF is another prominent client that also opted in 2018 to renew its contract for our services for a long term – a clear signal of its confidence in us.

These new business relationships also had a positive impact on our overall results for 2018: the number of transactions settled rose year on year in 2018 by 7.4 percent from approxi-mately 24.4 million to approximately 26.3 million. The number of end client securities accounts managed by us was 4.7 million at the end of 2018, nearly at the same level as in the previous year (4.8 million). At the end of December 2018, we served 386 clients, down slightly from 401 direct relationships in the previous year. This decrease reflected the process of consolidation within the German banking sector. Our earnings before taxes amounted to approximately EUR 25 million, and net income for the financial year was approximately EUR 17 million in 2018.

On this basis, we will continue to structure our portfolio of services for our clients in a positive way in the future. The introduction of our new schedule of prices and services in the previous year was a key step for us: as a result, we can now offer our clients more favourable conditions in areas

such as transaction, custody and BOSC in addition to a high level of transparency. This applies in particular to securities account management, where our aim is to stimulate more growth for our clients with significantly lower prices.

In addition, we continue to systematically implement our dwpbank 4.0 strategy and expect to conclude major portions of that programme in 2019. In this context, we are converting our reliable and stable settlement platform WP2 into the more modular securities system WP3, so that our clients’ requirements can be imple-mented more quickly in future and new products can be launched on the market. As in all other areas, we are guided by industry best practices, inspired by market trends and vigorous in our pursuit of innovative ideas.

What we must always remember in 2019: We want to strengthen our clients’ existing business and support them in developing new business – be it with reinvest-ment management, our Data Lab or our BOSC offering. In view of the challenging economic environment, the ongoing trade disputes between the USA and China, and Brexit, we believe that this is more important than ever.

We would like to thank our employees for their hard work and team spirit over the past year. They will continue to be the backbone of our success in 2019. We would also like to thank our clients for their continued trust, and we look forward to taking on new challenges for them and with them and shaping the future of German securities services.

left to right:

Markus Neukirch, Member of the Board

Dr. Heiko Beck, CEO

Thomas Klanten, Member of the Board

Letter from the Board of Management

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Annual report 2018

Partnership: working together for the best solution

“The smooth project flow and stable service from the start give us the certainty that our securities services are in good hands with dwpbank going forward.“

The world of finance has increased in complexity. The pace of develop-ment is increasing and with it come the possibility of re-thinking financial products. Changing one‘s own business processes is no longer an option – but a must. Yet, the path to the goal is not marked. It takes specialists who know every inch of their business and can recommend options for leveraging opportunities and avoiding risks.

As a leasing securities services provider in Germany, we rely on our experience and expertise to show our clients the best-possible path forward at any time. We partner with credit institutions in each of Germany‘s three banking sectors and we specialise in technological and regulatory requirements imposed on

securities processes. This expertise has made us a market leader which existing and new clients trust.

Earning new trustIn 2018, Hamburger Sparkasse (Haspa), Germany‘s largest savings bank, chose us. From the beginning of the process for deciding on an outsourcer through to the use of our custodian services, we have offered Haspa proactive advice. After only five months, we successfully completed

the migration process and since November 2018 we have functioned as an interim custodian for roughly EUR 23 billion in custody. This migration thus forms a solid foundation for the upcoming decision as to whether or not to fully migrate Haspa over to our full service offering.

Since 2018, Einlagensicherungsbank has been another of our new clients. As a partner for the specialist bank that supports the National Association of German Banks with the deposit protection fund, we manage and hold its clients‘ securities in custody.

Seeing eye-to-eye with clients and colleagues:

Ebrahem Boulehia (Securities accounts transfers)

Partnership: working together for the best solution

Axel Kodlin | Member of the Board of Management of Hamburger Sparkasse

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Annual report 2018

“The first impression: the working groups have greater competencies and can therefore come to decisions more quickly. The smaller groups offer sufficient oppor-tunities to have a constructive, efficient exchange of ideas.“

Old confidence confirmedNew technical possibilities and providers on the market for securities services mean that many credit institutions in Germany are looking into which service provider makes the best fit for them. This includes the private bank, ODDO BHF. Since 2011, the bank has been a client of ours, and last year it re-evaluated its securities services. The result: we will remain its partner going forward. The existing agreement with ODDO BHF was renewed for a long term.

A further sign of the trust placed in us is the expanded business relationship with numerous savings banks, which take advantage of our back-office services. In 2018, roughly 20 new clients opted for our BOSC offering – including the Frankfurter Sparkasse, Stadtsparkasse München and Sparkasse Nürnberg. Not least the new „Compliance Support“ module has met with significant interest. Since mid-2017 we have thus been able to win over approximately 250,000 additional BOSC securities accounts in the savings bank sector. Since April 2018, we have provided BOSC services to cooperative banks as well.

Open exchange, efficient structureHow can we best promote our clients‘ success? Which market trends are particularly relevant for our clients? Which new developments should be implemented with the highest priority? In order to more quickly and efficiently find answers to these questions, we restructured our client boards in 2018: by halving the number of boards, we have increased efficiency and split them up into the Advisory Board, Service Advisory Boards (SABs) and working groups for a clearer division of responsibilities.

Going forward, the 16-member Client Advisory Board will remain our most important body for coordinating projects and market issues with our clients from all three banking sectors. The two newly formed SABs for the institutional business and the retail business serve as sparring partners for the Advisory Board. Two additional working groups support the work of the Service Advisory Boards. The overarching objective: working together with our clients to develop the best solutions for them.

Offering security: you need a reliable partner so you can concentrate on new responsibilities.

Partnership: working together for the best solution

The new client boards at dwpbank ▪ Advisory Board ▪ Service Advisory Boards

▫ Retail

▫ Institutional

▪ Working groups

▫ Front of House and Transactions

▫ Custody, Securities accounts and Cash

Beate Kuhn | Group Head of Operations, DZ BANK

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Annual report 2018

A look at the market: guided by best practicesAs Germany‘s number one on the market for securities services, we always aim to provide our clients with the best solutions. What counts is the result – the possibilities for shaping that result are increasing. Only those who know these possibilities and how to leverage them can make a difference.

Why do roughly three quarters of all banks in Germany trust our securities services? Because our experience and our depth of service are unmatched. We are a central hub in the German financial sector and have close ties with many market participants. We link systems, harmonise processes and bring business partners from all three German banking sectors together. We know the German market like no other.

This enable our clients to benefit from this expertise. And we expand on it every day: we keep a close eye on what makes the markets tick. It goes without saying that we also keep tabs on the competition, because the optimal solution is not kept in an ivory tower. Particularly in times of increasing digitalisation, what is important is to be open, to exchange ideas and to give new ideas place to grow.

Continued development of online functionalityWe are always guided by the best practices within the industry, in order to constantly refine our services. In a study of securities accounts in 2018, we analysed out market position in order to provide additional support for efforts to continue to develop our online functionalities. One central finding: direct banks currently lead the pack when it comes to targeted communications. Online customers value plain and simple information that enables them to execute transactions without having to seek out advice. This finding has informed how we create client statements.

The interfaces with our clients represent another key factor for strengthening their online business. For instance, in future we will make functions available online, such as corporate action instructions and AGM admission tickets orders through OSplus_neo (the sales front-end for the savings banks). Not only in the savings banks association but also in other sectors, we have seen that the lines between the different sales channels are becoming increasingly blurred. In the second phase of the study, we examined income and withholding tax services, as well as orders/funds.

Bildunterschrift Lorem Ipsum

Our network with market par-ticipants in every sector of-fers us insight into the indust-ry like no other.

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Always an eye on trends: Freya Hoffmeister

(Product development, transactions)

A look at the market: guided by best practicesAnnual report 2018

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Annual report 2018

„ Nam experaepudae se voluptat offictus aceruntia pratinihil modic tecero op-tat ipsam, tem. Tam ius.“

Intelligent sourcing mixWhen it comes to our IT, here too we place great value on seizing on market trends and aligning ourselves with best practices. In 2018, we transferred technical responsibility for applications within the WP2 systems family to dwp Software Kft., among other things. By bundling these responsibilities, our Hungarian subsidiary is stepping up in its role as a strategic software deve-lopment company which is responsible for applications. In an increasingly competitive service environment, this new allocation of roles is a vital step in promoting our efforts to upgrade our systems to WP3 and to enhance efficiency within our IT department.

Efficiency and process optimisation also represent key drivers in our collabo-ration with service partners. Having completed efforts to consolidate our

providers in 2018, we have taken another crucial step. The project to consolidate three data centre providers into FI-TS was launched in 2015 and successfully brought to conclusion in June last year. Relevant core processes were reviewed and in some instances restructured, economic agreements were finalised and the correspon-ding contracts were modified.

Key steps towards OneClearstreamWe once again successfully expanded the central role we play in the market in 2018, particularly with respect to TARGET2-Securities (T2S) – thanks mainly to the “One-Clearstream“ project. The name stands for the creation of a single settlement platform for the German central securities depository, Clearstream. The standard settle-ment channel for securities classes eligible for collective custody will be changed from Clearstream Banking Luxemburg (CBL) to Clearstream Banking Frankfurt (CBF). In March 2018, Clearstream began the phased introduction of its T2S solution for the individual markets, starting with the migration for the Italian market. France, Belgium and the Netherlands followed shortly afterwards.

For us, this meant the migration of holdings in a total of 7,021 asset classes to dwpbank depositories. For our customers, this migration went without a hitch. Since 26 March 2018, we have also ensured that all new stock exchange transactions in the relevant asset classes have been settled via the new settlement channel. The clearing and settlement of securities transactions has since been even more efficient and secure. The plan for 2019 is to work even more closely with Clearstream to migrate securities settlement for other markets to T2S.

We work with service provi-ders in Germany and ab-road to increase efficiency and reduce costs.

Speed and stamina: the market demands both of

those who want to be ahead at the end.

A look at the market: guided by best practices

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Annual report 2018

Innovation: inspiration for the securities services of tomorrow

We use data intelligence to analyse client processes and identify existing potential.

Turning ideas into solutions – this is what motivates us. That‘s be-cause designing securities services means more than just adapting them to suit changing market conditions. Our aim is to constantly improve upon our service range, thereby helping to shape trends. Modern technologies and working methods play an ever-increasing role. We have only achieved our objective if the final product meets the needs of our clients.

Striving for new ideas: Christian Essl

(Head of securities account services)

Innovation: inspiration for the securities services of tomorrow

Data is the fuel of the digital economy. The challenge is to draw the right conclusions on the basis of large volumes. Data intelligence enables us to do

just that: we use data to generate information, which we make availab-le as knowledge. To that end, we have been analysing data from innumerable client processes in a virtual room since 2018. We look to see where there is potential for improved solutions and offer recommendations as to how, for instance, to boost end-client loyalty or to make more efficient use of

existing sales potential. Inactive securities accounts are identified so that we can step up our sales measures in order to reactivate them or to reveal which marketing channels we can use to best reach end clients.

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Annual report 2018

“We have been using reinvestment management since we launched the product. For our advisors, this is a fixed element in annual and semi-an-nual meetings to discuss securities ac-counts with clients. And we are al-ready seeing initial positive impacts on earnings.“

Automation increases efficiencyAs in all aspects of the digital economy, we are turning towards increasingly automated processes. In the field of asset management, this is called “Robo

Advisory“: automated digital invest-ment is one of the technologies of the future which we offer to our clients. We therefore work closely with FinTechs to leverage the advantages offered by new technologies.

When it comes to regulatory require-ments, we also aim to automate more and more processes going forward. For example, in 2018 we began to establish a new service, which enables our clients to automatically monitor embargo and sanctions violations when trading in securities.

Increased income through reinvestment Innovation means creating something new. That is just what we are doing with automated reinvestment

management: interest and dividend income are invested in a target asset class. Investors benefit from compound interest and our clients generate additional income. In addition, there is still the possibility of reinvesting fund income in the original asset class. It has also been possible to reinvest in an alternative target asset class since the middle of 2018. The result: the burden on our clients‘ advisors is lightened while the institution‘s earnings improve.

The settlement platform of the futureMaking processes leaner, reducing costs: in every depart-ment, we are looking to see how we can boost efficiency. This also goes for our core product, WP2. Since 2003, our multi-client platform has kept millions of transactions stable and ensured communication between clients, banks, stock exchanges, depositaries and ourselves. And it will continue to do so. However, in 2018 we turned the page to a new chapter: using the latest technology, we will make WP2 quicker and nimbler. We have launched the “MoveWP3“ programme to enable us to structure the

platform in a more modular fashion. This not only lays the foundation for new products and services, but also for harmonising technical processes and cutting down on manual workflows. The new structure will be developed in several separate stages, and we will continue our hard work on this programme in 2019.

Innovation: inspiration for the securities services of tomorrow

Using technology to enhance performance: data-driven processes improve the results.

Joachim Stooß | Head of sales management at Kreissparkasse Böblingen

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Annual report 2018

2018 Management reportDeutsche WertpapierService Bank AG

General information 24 - 29

Business model 24

Objectives and strategies 24

Equity investments 25

Branch offices 25

Economic report 26 - 31

Macroeconomic and sector environments 26

Course of the business 27 - 28

Financial position 28 - 31

Staff and welfare, risk report and report on expected developments 32 - 43

Staff and welfare 32 - 33

Corporate governance declaration 34

Risk report 34 - 40

Outlook and report on opportunities 41 - 43

Assets 44 - 45

Income statement 46 - 47

Notes to the 2018 annual financial statements 48 - 56

Country-by-Country-Reporting 57

Independent auditor‘s report 58 - 63

Report of the Supervisory Board 64 - 65

Members of the Advisory Board 66

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Annual report 2018

1.1 Business model

The business model of dwpbank is based on the provision of securities services for banks with a focus on financial brokerage and on securities custody and management.

The focus of dwpbank‘s business model lies on supporting banks and savings banks by providing their private and institutional end clients with stable, secure and efficient securities services In doing so, dwpbank supplies product solutions covering the entire securities service value chain, from its role as commission agent, through business process outsourcing (BPO) in securities settlement and custody, to providing back office services.

By bundling large transaction and custody volumes, dwpbank aims to generate a cost advantage through economies of scale and economies of scope relating to products, services and expertise. It also helps its clients to reduce costs by assuming operational risks. Regulatory requirements affecting the securities business are imple-mented for all member banks centrally, reducing costs. dwpbank‘s extensive expertise in the securities business enables it to set standards in the German market and implement these at an operational level on its WP2 securities settlement platform.

1 General information

1.2 Objectives and strategies

dwpbank‘s mission is to be its clients‘ “First choice for securities services“ in Germany. In order to achieve this goal, which has been set out in the “Vision 2021“ strategy, dwpbank provides a comprehensive service portfolio and highly standardised and automated processes to credit institutions in all three pillars of the German banking industry. These services focus on the retail and institu-tional business. The aim is to further increase client penetration in the securities business through selectively expanding the value chain.

The “dwpbank 4.0“ initiative was launched in the second half of 2016 and forms the framework for implementing the “Vision 2021“ strategy. In the business model and operational excellence subprogrammes, identified cost-reduction potential and business opportunities are implemented and centrally managed.

At the same time, the MoveWP3 programme that was launched in the first half of 2018 provides a framework for implementing efforts to modernise dwpbank‘s IT platform. The aim is for the continued technical development of the settlement systems to be achieved in several stages.

1.3 Equity investments

dwp Service GmbH (Halle (Saale)) dwpbank is the sole shareholder of dwp Service GmbH, which was formed in financial year 2017. dwp Service GmbH specialises in providing back office services for dwpbank‘s savings bank and bank clients. It performs its tasks on behalf of dwpbank.

A control and profit and loss transfer agreement has been entered into with dwp Service GmbH.

dwp Software Kft. (Budapest, Hungary) dwpbank is the sole shareholder of dwp Software Kft., which was founded in 2001 and provides IT services in the banking sector. Under the terms of an agency agreement, this subsidiary performs IT consulting services and develops software solutions for dwpbank and third parties.

1.4 Branch offices

dwpbank offers its services from its headquarters in Frankfurt am Main as well as from its branch offices in Düsseldorf, Munich and Troisdorf.

Its key figures were as follows as at the balance sheet date:

▪ Number of employees: 84 (previous year: 15)

▪ Other operating income: EUR 1,880 thousand (previous year: EUR 48 thousand)

▪ Total assets: EUR 1,185 thousand (previous year: EUR 506 thousand)

Its key figures were as follows as at the balance sheet date (translated into EUR on the basis of the reference rate published by the ECB of EUR 1 = HUF 320.98 as at 31 December 2018):

▪ Number of employees: 35 (previous year: 29)

▪ Sales: HUF 1,322,512 thousand (EUR 4,120 thousand, previous year: HUF 1,199,976 thousand)

▪ Total assets: HUF 417,665 thousand (EUR 1,301 thousand, previous year: HUF 387,635 thousand)

Cintac A/S (Roskilde, Denmark) dwpbank acquired a 26% stake in the Danish software company Cintac A/S (stock corporation incorporated under Danish law) in 2012. The company serves to strategically secure software expertise, which is used as the basis for two core products of the WP2 system family deployed at dwpbank. It secures the longterm licence to Dynamic AI and increases the options for cooperation with Cintac A/S.

Its key figures were as follows as at the balance sheet date (translated into EUR on the basis of the reference rate published by the ECB of EUR 1 = DKK 7.4673 as at 31 December 2018):

▪ Number of employees: 1 (previous year: 1)

▪ Sales: DKK 2,685 thousand (EUR 356 thousand, previous year: DKK 2,275 thousand)

▪ Total assets: DKK 2,926 thousand (EUR 392 thousand, previous year: DKK 3,038 thousand)

General information

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Annual report 2018

2.1 Macroeconomic and sector environments2.1.1 Market environment and development of market-driven figures 2018 was marked by high volatility, particularly with prices on the stock markets falling in the second half of the year. The Deutsche Aktienindex (DAX) started at roughly 13,167 points (Xetra closing price) on 4 January 2018. As in previous years, the course of 2018 was characterised by numerous fluctua-tions. The DAX fell sharply from 13,167 points at the beginning of the year to 11,886 points as at 23 March 2018, before climb-ing back to 13,114 on 17 May 2018 (+1,228 points, or +10.3%). After that, the index again plummeted to its low for the year at 10,382 on 27 December 2018. At the end of the year, the DAX again rose slightly to 10,559 points on the final trading day of the year. Over the course of the year, the DAX thus had a significantly negative performance trend of -19.8%.

From dwpbank‘s perspective, the volatile market environment in the securities business in 2018 led to a sharp increase in transactions initiated by dwpbank‘s clients. The number of transactions rose by roughly 7.8% year on year to approxi-mately 26.3 million (previous year: approximately 24.4 million transactions). The number of managed endclient securities accounts fell slightly during the same period from 4.8 million as at the end of 2017 to 4.7 million as at the end of 2018.

2.1.2 Expanded regulatory and market infrastructure- driven requirements As in previous years, regulatory requirements and require-ments driven by market infrastructure had an impact on dwpbank‘s business model. This affected dwpbank directly as a CRR bank but also particularly in its capacity as a service provider for the bundled implementation of requirements for its clients.

MiFID II / MiFIR Financial year 2018 saw the completion of efforts to imple-ment the requirements resulting from the EU Markets in Financial Instruments Directive (MiFID II) and the correspond-ing regulation (MiFIR) on issues surrounding investor protec-tion and market infrastructure. The key action areas included the newly designed best execution regime, transparency aspects of products and infrastructure, and transaction report-ing. dwpbank provided its clients with MiFID II/MiFIR-compli-ant systems and support services as at the effective date of MiFID II on 3 January 2018.

2 Economic report

TARGET2-Securities After completing the migration of the national securities business to the TARGET2-Securities (T2S) platform in financial year 2017, dwpbank implemented additional functions in 2018 to increase efficiency of securities settlement. In addition, dwpbank worked with Clearstream Banking AG to link the first foreign markets on Clear-stream‘s CREATION platform to T2S via OneClearstream.

Investment tax reform In financial year 2018, further key elements of the investment tax reform that entered into force on 1 January 2018 were implemented in the securities settlement system, which have been applied since 1 January 2019, including in particular the advance lumpsum amount (Vorabpauschale) withheld as at 2 January 2019 for the first time on gains from growth funds and investment funds which pay small distributions. This was followed by the implementation of the certificate of holding of investment fund units (Investmentanteil-Bestandsnachweis), which investors eligible for tax relief can submit to asset management companies to obtain a tax reimbursement. Since the German Banking Industry Committee had yet to receive final application guidance from the German Ministry of Finance as at 31 December 2018, further changes can be expected.

Regulatory requirements on outsourcing / BAITT In financial year 2018, the amended Minimum Require-ments for Risk Management (Mindestanforderungen an das Risikomanagement, “MaRisk“) were implemented completely and the Supervisory Requirements for IT (Bankaufsichtliche Anforderungen an die IT, “BAIT“) in Financial Institutions were largely implemented. In addition, at the end of September 2018, the European Banking Authority (EBA) published draft guidelines for outsourcing, which the banking sector has been discuss-ing since then.

EU General Data Protection Regulation (GDPR) In financial year 2018, the provisions of the European General Data Protection Regulation (GDPR) were implemented in dwpbank‘s regulations and systems, and its data protection organisation was modified to reflect these. As part of an implementation project, all processes and applications were scoured for personal data and agreements with clients and service providers were amended.

2.2 Course of the business

2.2.1 Continuation and successful implementation of key projects

“dwpbank 4.0“ strategy programme The “dwpbank 4.0” strategy programme bundles various activities aimed at increasing strategy workflow efficiency and realising additional revenue potential. Among other things, this end-to-end optimisation method pursues the objective of establishing continuous and sustainably efficient cost structures and securing them for the long term. As part of the process, trained coaches examine defined process chains throughout the organisation to fins potential for optimisation and standardisation. 1,493 potential measures were identified by the end of 2018, of which 598 were implemented in that time.

The successive expansion of dwp Service GmbH, which was formed in 2017, continued as planned in 2018 under the “dwpbank 4.0” programme. As of December 2018, 84 people are employed in Halle to carry out approximately 70 processes for dwpbank clients. A further expansion is planned for 2019.

In 2018, the new custody services component was implement-ed which forms the basis for continued development, associ-ated with continued growth in dwpbank’s volume in custody.

The reinvestment management programme was also introduced as a new product for dwpbank clients in 2018. This programme enables dwpbank’s clients to automatically and flexibly reinvest returns from interest and dividend payments in eligible asset classes.

Since mid-2017, stepped-up sales activities in the back-office BOSC-Services product have resulted in new clients opening more than 250,000 securities accounts in total.

Data centre provider consolidation successfully completed In 2018, dwpbank completed the project launched in 2015 to consolidate three data centre providers (Deutsche Börse AG, Freudenberg-IT und FI-TS) with FI-TS. During the course of the migration, operating and management processes were revised or replaced and various applications (specifically office infrastructure, SAP, workstation systems) and a further 43 core securities applications systems were transferred to FI-TS.

As a result of the transfer, activities outside dwpbank’s core business were outsourced, operating interfaces were stream-lined and reduced and operating processes were modified with the aim of increasing operating efficiency and standardisation.

Assumption of custody services for Hamburger Sparkasse In November 2018, the migration of Hamburger Sparkasse’s custody services to dwpbank was completed. Hamburger Sparkasse has a total volume in custody of approximately EUR 23 billion and is the largest custodian in the German savings banks association.

Migration of EIS Einlagensicherungsbank GmbH The migration of EIS Einlagensicherungsbank GmbH to the WP2 securities settlement platform was completed in September 2018.

This gives rise to the prospect that securities of up to 250 banks, with an estimated volume in the ten-digit range, could be held in custody and managed by dwpbank via EIS Einlagensicherungsbank GmbH.

2.2.2 Number of clients follows consolidation trend in German banking sector As at the 31 December 2018 reporting date, dwpbank had a total of 386 direct clients (previous year: 401). The decline, which resulted from corporate consolidations (mergers and company integrations), reflects the trend in the German banking market. In addition, individual banks are taking strides to discontinue their own legal custody management and securities procurement activities.

The German banking industry can be divided into the following groups of client institutions:

German Cooperative Financial Services Network (Genossenschaftliche FinanzGruppe) The most significant client from the German Cooperative Financial Services Network is DZ BANK AG. A further 902 (previous year: 943) local credit cooperatives and private banks in total are linked to dwpbank’s WP2 system via DZ BANK AG. dwpbank also had a direct contractual relation-ship with Deutsche Apotheker- und Ärztebank eG (apoBank) and Bank für Sozialwirtschaft AG, both of which use the WP2 system in the securities system services.

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Public-sector banks, including German Savings Banks Finance Group By the end of the year, 5 state banks (Bayerische Landesbank, HSH Nordbank AG, Landesbank Hessen-Thüringen Girozen-trale, Norddeutsche Landesbank - Girozentrale -, and SaarLB) and 352 (previous year: 365) savings banks from all 16 German states made use of services offered by dwpbank.

In 2018, system services were also performed for Landesbank Baden-Württemberg. dwpbank also provides a variety of back-office services for DekaBank.

Private/commercial banking The number of clients in the private and commercial banking sector amounted to 24 (previous year: 26) institutions as at 31 December 2018, including ODDO BHF Aktiengesellschaft, Postbank – eine Niederlassung der DB Privat- und Firmen-kundenbank AG, Santander Consumer Bank AG, Deutsche Kreditbank Aktiengesellschaft and MLP Banking AG.

2.2.3 Ongoing involvement of our clientsRegular exchange with clients on strategic and substantive matters continues to play a significant role for dwpbank. The Advisory Board, dwpbank’s highest-ranking client board, held one meeting in 2018. It met to discuss dwpbank’s enquiries into forward-looking, marketdriven matters such as digitalisation in the asset management sector and the use of artificial intelligence, as well as reports on regulatory challenges and other activities mandated by law and reports on special sales issues such as making the reinvestment management product available.

The “Service Advisory Board – Retail” and “Service Advisory Board – Institutional” were formed in 2018 and are subordinate to the Advisory Board. The Service Advisory Boards discuss substantive issues and prepare recommendations for the Advisory Board. They focus on issues such as technical recommendations for further development to the benefit of shared requirements stemming from the market, competition, trends and regulatory issues, as well as the relevant proposals from dwpbank.

1 Excl. employees on leave 2 The figure in parentheses includes the number of local credit cooperatives and cooperation banks connected to dwpbank‘s client DZ BANK.

2.3 Financial position

2.3.1 Results of operations

Non-monetary performance indicators Key factors influencing dwpbank’s results of operations include in particular the volume of securities transac-tions settled and the volume of securities accounts managed.

The overall volume of securities transactions settled by dwpbank increased by 7.8% year on year to 26.3 million. The number of managed securities accounts fell slightly year on year to 4.7 million.

The ongoing human resources optimisation measures were systematically implemented in 2018. As a result, the number of people employed full-time at the end of the year fell year on year to 1,128.

Since 2018, dwpbank has published a separate annual “non-financial statement” for the preceding financial year in accordance with the German Act Implementing the CSR Directive (CSR-Richtlinie-Umsetzungsgesetz). This report presents further non-financial performance metrics. No connection between the non-financial performance metrics reported in the non-financial statement ad the amounts published in this management report has been found to exist in the current year under review. The non-financial statement is published on dwpbank’s website (http://www.dwpbank.de/aktuell/publikationen/) within the deadline stipulated by law.

The primary monetary performance indicator at dwpbank is earnings before taxes, which are calculated using the key income and expense items. The corresponding management tools used by dwpbank are:

▪ the annual planning and budgeting process,

▪ monthly balanced scorecard,

▪ quarterly projections and reports (quarterly reports).

Monetary performance indicators

Monetary performance indicators (EUR million) 2018 2017 Delta

Interest income 3,6 3,8 -0,2

Interest expense -1,8 -1,4 -0,4

Net interest income 1,8 2,4 -0,6

Fee and commission income 303,9 873,5 -569,6

Fee and commission expense -64,3 -651,0 +586,7

Net fee and commission income 239,6 222,4 +17,2

Other operating income 38,4 50,5 -12,1

Other operating expenses -31,2 -34,1 +3,0

Net other operating income 7,2 16,4 -9,1

Personnel expenses -106,2 -105,5 -0,7

Other administrative expenses -104,4 -99,2 -5,2

Total general and administrative expenses -210,6 -204,7 -5,9

Depreciation, amortisation and write-downs -13,0 -9,5 -3,5Earnings before taxes 25,0 27,0 -2,0

Taxes on income -7,9 -4,9 -3,0

Net income for the financial year 17,1 22,1 -5,0

Computational rounding differences may appear in the tables, so that the figures included therein may deviate from the precise figures.

Non-monetary performance indicators 2018 2017 Delta

Sales-driven transactions (millions) 26,3 24,4 + 1,9

Securities accounts managed (millions) 4,7 4,8 - 0,1

Number of full-time equivalents (FTEs) at year-end (1) 1.128 1.157 - 29

Number of clients (credit institutions) (2) 386 (+902) 401 (+943) -15 (-41)

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dwpbank’s earnings before taxes fell year on year by EUR 2.0 million to EUR 25.0 million, and its net income for the financial year also fell year on year, by EUR 5.0 million to EUR 17.1 million. A significantly higher fee and commis-sion income was offset by a decline in other operating income and increased administrative expenses.

Net interest income primarily reflects income from coupons on the Bank’s own portfolio of fixed-income securities, which are made available as collateral for third-party institutions (Central Securities Depositories, regional Bundesbank offices) as part of securities services.

The significant decrease in fee and commission income and expenses was attributable to the change in the presentation of bonuses, which due to their nature as passthrough items are no longer reported in the income statement as of the current financial year (please refer to the notes for further information). In the previous year, these had amounted to EUR 567.6 million. During the year under review, a new schedule of prices and services was introduced for a majority of clients. The resulting shift of income from other operating income to fee and commission income due to the change in product categories in the new schedule of prices and services, particularly in the area of interface income, along with lower expenses for securities account and transaction fees, resulted in an improvement in fee and commission income.

Other operating income fell significantly, primarily due to economic effects (EUR -9.1 million). Firstly, the changeo-ver to the new pricing model and the accompanying change in product classification, particularly in the area of interface income, resulted in a shift of approximately EUR 6 million in income to fee and commission income. Secondly, the prior-year operating result had been marked primarily by a non-recurring tax refund in relation to WIS products and higher restructuring costs.

The slight increase in personnel expenses resulted from lower project activation than in the previous year for the creation of software projects. Absent these effects, personnel expenses would have fallen year on year by EUR 1.5 million. In line with the procedure used in previous years, EUR 6.5 million in personnel expenses were capitalised in 2018 in connection with the develop-ment of software components.

Other administrative expenses increased year on year due in particular to higher IT operating expenses.

Depreciation and write-downs reflected the EUR 11.4 million reduction in tangible fixed assets and the EUR 1.6 million decrease in the fixed-income securities held in the Bank’s own portfolio. Amortisation of internally generated soft-ware components resulted in expenses totalling EUR 9.5 million (previous year: EUR 5.1 million).

The increase in the tax burden as compared to 2017 was due to offsetting effects between the tax accounts and the financial accounts. These effects were due in particu-lar to the different discounting of the pension provision, the adjustment to the restructuring provision and the reduction in recognition of internally generated assets as compared to 2017

2.3.2 Net assets and financial position As at 31 December 2018, dwpbank had total assets of EUR 526.8 million (previous year: EUR 952.9 million). Total assets consist of current receivables of EUR 114.5 million (previous year: EUR 551.9 million) from the settlement of payments in association with securities, which are offset by similar amounts of liabilities. The sharp decrease resulted from approximately EUR 400 million in transactions not delivered as at 31 December 2017, which resulted in an extraordinary increase in total assets in the previous year.

The Bank does not conduct any active lending business. Formal lending relationships result primarily from bank transactions pursuant to section 1 (1) sentence 2 no. 2 KWG in which instructions from the securities seller relating to the selling price are already permitted on the expected settlement date.

As at the balance sheet date, dwpbank’s primary assets on the one hand included direct investments in interest-bearing securities (EUR 120.5 million; previous year: EUR 118.9 million), which are available as collateral for the settlement of the operating activities in the securities business. On the other hand, cash and cash equivalents amounting to EUR 100 million (previous year: EUR 100 million) were invested in a German institutional fund (Spezialfonds).

The capitalisation of internally generated software resulted in intangible fixed assets of EUR 35.0 million

(previous year: EUR 32.8 million), reflecting the creation of additional functionalities within the WP2 settlement system. The increase as against the previous year was due to comprehensive developments to implement regulatory requirements. Other assets consist primarily of tangible fixed assets (operating and office equipment), software and licences, and receivables from services billed to clients.

As at 31 December 2018, dwpbank had a surplus of deferred tax assets amounting to EUR 19.3 million (previous year: EUR 18.4 million). This surplus resulted from temporary differences in the measurement of balance sheet items in the tax accounts versus the financial accounts.

As at the date of adoption of the 2018 annual financial statements, dwpbank’s equity amounted to EUR 195.8 million, incl. net retained profits (previous year: EUR 193.7 million). The Bank’s liable capital in the amount of EUR 127.9 million (previous year: EUR 127.9 million) continues to consist solely of core (common equity tier 1) capital. At 31 December 2018, the tier 1 capital ratio amounted to 18.1%, well in excess of the minimum capital requirements of 12.375% prescribed by the regulatory authorities (incl. 1.875% capital maintenance buffer).

As at the balance sheet date, the Bank reported pension obligations totalling EUR 117.1 million (previous year: EUR 103.0 million). Furthermore, current provisions and liabilities from operating activities total EUR 87.7 million (previous year: EUR 96.1 million).

dwpbank was able to meet its financial commitments at all times throughout the 2018 financial year. Through its clearing service providers, dwpbank has ample opportu-nity to refinance peak volumes of securities-related payment transactions. The structure and maturity of cash and cash equivalents and payment obligations are monitored on a daily basis and managed using corre-sponding planning tools.

2.3.3 Summary of dwpbank‘s financial position in the 2018 financial year Overall, the result for the 2018 financial year was roughly in line with the prior-year forecast and thus down slightly year on year, as expected.

The trends in costs in financial year 2018 reflect the systematic continuation of activities aimed at optimising processes and expenditures. Although IT operating costs increased, the optimisation of non-labour costs as well as securities account and transaction costs rendered it possible to reduce costs overall. However, this effect was more than offset by a negative earnings trend caused by a one-off item in the previous year (tax reimbursement in relation to WIS products).

Non-recurring expenses were incurred in relation to the implementation of further personnel restructuring measures.

Project activities again focused on implementing statutory and regulatory requirements, and on the realisation of customer requirements, as well as process and system optimisation.

dwpbank‘s net assets and financial position were stable and balanced at all times. Business developments at dwpbank can be described as positive overall against the backdrop of the developments described above.

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3.1 Staff and welfare

3.1.1 Number of employees and staff structure dwpbank employed 1,2341 staff2 at the end of 2018 (previous year: 1,265).

In December, 605 staff members worked in Frankfurt (previous year: 632), 448 in Düsseldorf (previous year: 450), 179 in Munich (previous year: 178) and 2 in Troisdorf (previ-ous year: 5). The divisional staff breakdown at the various locations throughout the Bank was as follows: 114 staff in Corporate and Client Management, 396 in IT, Finance and Risk Management, and 724 in Operations. Of that headcount, 37 staff were trainees (previous year: 39).

The Bank employs 578 women (47%) and 656 men (53%). The share of parttime employees was at the same level as in the previous year at 31.0% or 382 people (previous year: 30.6%). The average age of employees was 47.2 (previous year: 46.9).

At the end of the year, 11 executives and one department head reported directly to the Board of Management. 65 department heads were assigned to the divisions.

3.1.2 RemunerationAs a significant institution pursuant to the definition criteria set out in the Regulation Governing Remunera-tion at Institutions (Instituts-Vergütungsverordnung – InstitutsVergV), dwpbank must comply with both the general and the specific requirements of the Insti-tutsVergV.

In addition to the Board of Management of dwpbank, all positions with management responsibility which report directly to the Board of Management, as well as five named employees, were defined as risk takers. These persons are subject to remuneration rules resolved in compliance with the requirements of the InstitutsVergV in the version that entered into force as at 4 August 2017. The variable remuneration of the risk takers is determined based on targets which are set each year, with corporate targets accounting for 70% and indi-vidual targets and targets relating to the specific risk taker’s organisational unit accounting for 30% of variable remuneration in 2018. These targets are set for either a three-year period or for the respective financial year. A risk taker’s variable remuneration may not exceed their fixed remuneration. If the paid variable

3 Staff and welfare, risk report and report on expected developments

remuneration of a risk taker exceeds the threshold of EUR 50,000 stipulated in the InstitutsVergV, the variable remuneration is disbursed over several years.

The remuneration policy for non-wage scale employees not identified as risk takers also complies with the requirements of the Regulation Governing Remunera-tion at Institutions (Instituts-Vergütungsverordnung – InstitutsVergV), which entered into force on 4 August 2017. These employees receive a variable remuneration which is also measured against fixed corporate and individual targets. Here, too, the variable remuneration may not exceed an individual’s fixed remuneration.

An agreement was concluded with the co-determina-tion bodies regarding the possibility of remuneration for outstanding one-off employee performance, thus replacing the previous guidelines on bonus payments. Risk takers are excepted from this agreement. One-off bonuses were paid out in accordance with these guidelines for the first time in December 2018.

3.1.3 Human resources developmentThe focus of human resources development activities was placed on continued development and expansion of methodological competency as well as the ongoing skills conversion in IT. In particular, offerings to expand exper-tise in agile methods and new technologies were used. The offerings for executive development were further expanded and support mainly the issues relating to management in change, the new employee review “dialog” introduced in 2017 and the introduction of the new Q³ tool (see section 3.1.4). Measures to strengthen project management were also offered in 2018 and were well used.

A core component of the “dwpbank 4.0” strategy programme included the measures relating to cultural change within the Bank in 2018. Human resources development measures focused on “leadership” and “project culture”. Based on the “dwpbank leadership principles”, a working group developed practical examples for implementation and set out in detail the duties of management. With respect to project culture, project managers at dwpbank are becoming increasingly intercon-nected. To support this, a shared project manager day with a “learning journey” was organised.

3.1.4 Q³ – Qualification, Quality and QuantityIn mid-2018, the Q³ – Qualification, Quality and Quantity tool (“Q³”) was developed. Q³ forms the basis for a needsbased human resources development and talent management system. This focuses on succession planning for mission-critical key positions and the use of targeted qualification modules to promote the development of promising employees. As a basis for this, in the second half of 2018, a Bank-wide survey of the target/actual situation in the organisational units was conducted by executives and highpotential individuals and key positions were identi-fied. This step also encompassed human resources development planning for executives in preparation of the employee reviews. In financial year 2019, the further process relating to the qualification modules and succession planning will follow.

3.1.5 Trainee programme In mid-November 2018, dwpbank was certified as a “Fair trainee programme” by Absolventa GmbH in cooperation with trendence Institut GmbH for its trainee programme established in 2010, which has now had 7 trainee cohorts. The trainee programme, which lasts over 18 months, has proven valuable, particularly at the Düsseldorf and Frankfurt offices, with a focus on operations, customer management and IT, in addition to the practical twintrack study programme and IHK training, as a key component in avoiding a shortage of specialists and managers, meeting demographic change within the framework of skill restructuring, targetoriented specialist training geared to the Bank’s strategic orientation and the requirements of the market.

For the Class of 2018, five trainees were recruited in Frank-furt and Düsseldorf to work in transaction services and IT. In February 2018, ten trainees from the Class of 2016 success-fully completed their trainee programme and each was taken on with a permanent employment agreement.

3.1.6 Twin-track course of studySince 2014, dwpbank has cooperated with FOM Hochschule für Ökonomie & Management to offer twin-track Bachelor’s courses in Banking and Finance, Business Administration and Business Informatics. In August 2018, eight students began their 7-semester twintrack professional studies in all three courses at Düsseldorf, Frankfurt and Munich. The six students from the first cohort successfully completed their Bachelor’s degrees in the first half of 2018 and were taken on permanently.

3.1.7 CIC training In October 2018 dwpbank was named “Best Trainer in Germany” by the business magazine Capital (Issue 11/2018) for its twintrack study course and IHK training courses. IHK training courses to become an Office management assistant and an Applications Development IT Specialist has been a core element of targeted efforts to recruit trained staff since 2006.

Düsseldorf and Munich recruited two trainee Office manage-ment assistants each for 2018. In July 2018, three trainee Office management assistants in Düsseldorf successfully completed their IHK training. Two trainees were immediately taken on permanently, and one was signed temporarily.

3.1.8 Employee survey In September 2018, the employee survey was carried out with a condensed questionnaire including five boxes to write in comments. On the one hand, these were used to analyse the effectiveness of the measures implemented in 2017 to improve healthy working conditions; on the other, it was possible for the first time to provide direct feedback to the Board of Management. Both positively perceived changes and potential for improvement were identified. Employees offered comprehensive and varied feedback in almost 1,500 comments. The questionnaire consisted of the following blocks: “Personal development and team needs”, “Change at dwpbank” and “Corporate governance (Board of Manage-ment and Department heads)” as well as “Healthy working conditions”. The overall results were available in November 2018 and, in addition to great stability in the highest approval ratings, showed a measurable upward trend, which is also evident in the “Organisational Readiness for Change” index.

1 Excluding members of the Board of Management and employees on leave such as those on maternity or paternity leave or on leave of absence. 2 In the following, “staff“ shall be taken to mean both male and female members of staff.

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3.2 Corporate governance declaration

In accordance with the Act on the Equal Participation of Women and Men in Leadership Positions in the Private and Public Sectors (Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen in der Privatwirtschaft und im öffentlichen Dienst), dwpbank has undertaken to achieve a target of 25% of women in divisional head positions and 30% of women in departmental head positions by the established deadline of 30 June 2022. The Supervisory Board resolved a target of 0% for the Board of Management and a target of 10% for the Supervisory Board, also as at the 30 June 2022 reporting date.

At 31 December 2018, the percentage of women at the management level below the Board of Management rose to 28.5% (from 25% in the previous year) and the percent-age serving as head of department remained virtually the same year on year at 28.1% (previous year: 28.5%). That percentage increased on the Supervisory Board to 6.7% (previous year: 0%). As previously, no women serve on the Board of Management.

3.3 Risk report

dwpbank has initiated the measures set out in section 25a (1) of the German Banking Act (Kreditwesengesetz, “KWG”) and section 91 (2) of the German Stock Corporation Act (Ak-tiengesetz, “AktG”) requiring it to establish a risk early warning system. dwpbank has suitable systems in place to manage, monitor and control risks and possesses appropri-ate means to determine the Bank’s financial position at any time with sufficient accuracy. The existing risk management tools and risk-bearing capacity analysis methods were further refined during the year under review.

3.3.1 Risk strategy: the foundation for the risk management systemThe risk strategy constitutes the framework for the organisation of risk management and risk reporting, under which risks are categorised and described. It defines the risk management and controlling processes, risk-bearing capacity, the allocation of risk capital and incentive systems. The change in 2018 resulted primarily from the defined corporate objectives and the fact that current regulatory requirements were taken into account. The risk strategy is geared towards supporting the sustain-able attainment of the targets formulated in the corpo-rate strategy.

Responsibility for risk management lies with the Board of Management, which established the centralised and independent risk management organisational unit. In addition, clear roles and responsibilities have been defined for its operative implementation. The information security and contingency management functions have been integrated into the Risk Management department. The Risk Management department sets the general conditions for a Bank-wide risk management system and develops methods and processes for measuring and controlling risks. The risk management system is adjusted on an ongoing basis in line with changing legal and regulatory requirements and using the latest scientific methods.

3.3.2 Risk management: consistent responsibilityAll executives at dwpbank are responsible for identifying, reporting, controlling and managing the risks which arise in their respective areas of responsibility. Risk manage-ment officers are also appointed in each of the Bank’s units. They serve as multipliers and their knowledge and experience make them a key element of operative risk management (including serving as a first port of call for central risk management, offering support and assistance in quantifying identified risks). This also includes central-ised monthly reporting on indicators that is included in the Bank-wide risk report.

In addition to ad-hoc risk and recovery reports and IT disruption reports, the monthly risk report regularly covers analyses from the loss database and risk indica-tors. In it, critical matters from the month under review are presented and causes, effects and measures are explained. Moreover, a quarterly report on the findings of the analysis of risk-bearing capacity is also prepared.

In addition, the annual risk report also covers risk devel-opments and measures implemented in the past year. These reports are discussed at the quarterly meetings of the Risk Committee, which all Board of Management members attend. An operating risk committee meets in months when the risk report is not discussed at a meeting of the Board of Management. In addition, risk indicators and losses are included in the monthly management report.

The Supervisory Board receives reports on the risk situation of dwpbank on a quarterly or ad-hoc basis, as necessary.

3.3.3 Application of the AMA to quantify operational risksdwpbank applies an approved Advanced Measurement Approach (AMA) to quantify operational risks for the analysis of risk-bearing capacity (Pillar II) and calculate the relevant own funds requirement (Pillar I). The key elements of the AMA model at dwpbank consist of an internal loss database, external risk data, risk assess-ments, scenario analyses and business environment and internal control factors. The internal loss database is used to capture and compile losses and has been imple-mented since 1 January 2004. The data is used to determine historical loss distributions. The evaluations performed using the database enable the systematic analysis of events, losses and causes and a description of the Bank’s risk situation in addition to evidencing risk management measures.

Data on actual and expected losses from the occurrence of events are supplemented by the findings of an annual risk assessment. After the risk assessment, a scenario analysis is carried out to more closely analyse serious risk scenarios and scenarios of particular Bank-wide rel-evance and to achieve the best possible assessment of the risk profile. The two instruments combined make it possible to analyse risks and prioritise measures on a statistical basis.

dwpbank performs special assessments during the year if it has launched new products or entered new business areas. Near-miss losses or the implementation of risk-reducing measures can also trigger a review of prior assessments.

As a component of the risk management early warning system, risk indicators guarantee early risk identification thanks to the definition of objective limits. If an indicator is seen to be developing critically, monitoring is promptly increased and risk management measures are triggered. The regular monitoring of the specified indicators and risk scores enables the early identification of indications of pending risks. Risk indicator reporting is a dynamic process. Key indicator limits were updated in 2018 with the aim of increasing risk sensitivity, and existing indica-tors were reviewed and adjusted. In addition to risk indicators, dwpbank uses other ratios as part of its risk management system. These are business environment and internal control factors that are relevant to dwpbank’s risk profile. They form a key basis of measure-

ment for the purpose of risk assessment and scenario analysis. In addition the system of indicators includes recovery-related indicators.

The risk management framework has been published throughout the Bank in a risk management manual that is binding for all employees. The provisions set out in the manual are taken into account in the department-specific process documentation and work instructions.

The Risk Management department initiates measures aimed at promoting a healthy risk culture. These include Bank-wide risk management events, the appointment of departmental risk officers, loss database training and internal publications. Furthermore, a code of conduct is in place to raise employee awareness of the need for risk-compliant behaviour.

The annual audit of dwpbank’s risk management system forms part of Internal Audit’s audit plan.

3.3.4 Risk categories and their significance to risk-bearing capacityAs part of the risk-bearing capacity analysis, dwpbank initially determines its risk cover assets using adjusted accounting figures and compares these to the risks seen from a liquidation approach. The analysis of risk-bearing capacity is supplemented regularly by comparing expected losses with provisions and loss budgets and by stress tests.

The recognition of own funds and hidden reserves as risk coverage potential in the analysis of risk-bearing capacity is adjusted for intangible assets and tax effects when leveraging hidden reserves and for deferred tax assets in accordance with HGB accounting regulations, thereby reducing the overall risk cover assets recognised sepa-rately from liable capital. In addition, the difference between the carrying amount and the economic value of dwpbank’s pension obligations – represent-ing a hidden liability – was deducted for the first time in 2018, primar-ily reflecting the impact of the existing low interest rate environment.

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While planned or expected profits are not recognised as risk coverage potential, profits already received are recognised. As at the end of the fourth quarter of 2018, the profit received (earnings before tax) before the decision on the profit appropriation amounted to EUR 25.0 million. Together with adjusted hidden reserves and adjusted own funds, the risk cover assets amounted to EUR 102.6 million as at 31 December 2018 (previous year: EUR 138.2 million).

The risk cover assets are compared against the risks at dwpbank. Risk amounts are added up using a conservative approach. As at the end of 2018, operational risks, counter-party risks, market price risks, pension risks and business risks produced a total risk amount of EUR 86.4 million (previous year: EUR 74.4 million), which utilised risk cover assets by 84.2% (previous year: 53.8%). The risk cover margin or buffer amounted to EUR 16.2 million (previous year: EUR 63.8 million). The decrease in risk cover assets and the increase in risks and accompanying reduction in the risk buffer year on year resulted primarily from the first-time inclusion of risks from pension obligations.

Operational risks 48,0 Mio. EUR

Counterparty risks 8,6 Mio. EUR

Market risks 9,7 Mio. EUR

Pension risks 14,7 Mio. EUR

Business risks 5,3 Mio. EUR

Total risks 86,4 Mio. EUR Risk cover assets 102,6 Mio. EUR

Operational risks are quantified at dwpbank as part of the advanced measurement approach (AMA) and incorpo-rated into the risk-bearing capacity analysis at their annual value-at-risk (VaR) in the 99.9% quantile. A the end of 2018, the operational risk was EUR 48.0 million (previous year: EUR 49.8 million).

Operational risks dwpbank classifies process, employee, technology and external risks under operational risk, with explicit reference to legal risk. Operational risk relating to project work is referred to as project risk. At dwpbank, projects are a central component for implementing corporate strategy and business decisions. In addition, potential risks from projects are identified and assessed indica-tively as part of an established project management process. Losses incurred are entered in the internal loss database.

The scenario analysis has a significant influence on the quantitative amount recognised for operational risk. At present, this tool has been used to assess 19 scenarios. It revealed that the possibility of erroneous corporate actions represents the highest risk amount, followed by the risk of errors in project work.

Counterparty risks By counterparty risks, dwpbank generally means the risk that receivables cannot be realised because obligors (counterparties) are no longer solvent or they default. dwpbank does not conduct active commercial lending business. It maintains client relationships with banks. Given this, the counterparty risk does not usually relate to the risk of loan losses.

In particular, the receivables categories in the ledger (invoices, time and sight deposits, bonds and fund units) are examined to quantify the risk amount for counter-party risk. Positions from the settlement of payments in association with securities for dwpbank clients (operat-ing business) have a comparatively very small share in the risk amount. They are only relevant in certain case configurations in which dwpbank acts as a commission agent.

The starting point for calculating the risk amount for counterparty risks is the receivables holdings and exposures of the counterparties concerned. Probabilities of default are derived from the available rating informa-tion. Starting from the 99.9% probability level of the risk-bearing capacity analysis, the counterparties are included in the calculation of the risk amount whose rating induces a probability of default p.a. greater than or equal to 0.1%. The necessary backing by risk cover assets which is expressed by the risk amount is essentially oriented towards the amount of potential defaults by the three counterparties with the highest default or risk

amounts in the stated probability interval. Insolvency recovery rates that reduce the extent of a default are taken into account. dwpbank may use the risk amount and, if necessary, the supporting analyses as impetus for risk controlling measures.

Overall, the risk amount for counterparty risks reflects the possibility of counterparty defaults within dwpbank’s overall receivables portfolio. The counterparties within the receivables portfolio feature high ratings, which is due in particular to the restrictions on investment strategy.

Market risks As dwpbank does not conduct proprietary securities trading and its business model is not geared to taking market price risks (dwpbank does not have a trading book), market price risks relate primarily to the invest-ment of cash and cash equivalents in line with the investment strategy (bonds, funds). Market risks could primarily occur in the context of the unscheduled liquida-tion of holdings.

The bonds used as collateral in the securities settlement process are examined for interest rate sensitivity and a risk amount is derived using empirically observed interest rate diversification. The determination of the market risk for the German institutional fund (Spezialfonds) managed by dwpbank is based on the regular reporting of the fund company’s risk indicators. Exchange rate risks are deter-mined using publicly available information on exchange rate fluctuations and correlations, where applicable, to derive the risk amount. The analyses of market risk can serve as impetus for risk controlling measures, such as in terms of investor conduct or process design.

Market price risk is shaped by interest rate risk in dwpbank’s investment portfolio.

For counterparty, market price, pension and business risks, respective plausible risk amounts are included in the risk-bearing capacity analysis on the basis of materiality assessments and expert estimates in accordance with Minimum Requirements for Risk Management (Mindestan-forderungen an das Risikomanagement, MaRisk, General Section 4.1(5)). These risk amounts are also scaled to the 99.9% quantile on a yearly basis and amount to EUR 8.6 million (previous year: EUR 9.2 million) for counterparty risk and EUR 9.7 million (previous year: EUR 7.8 million) for market price risk and EUR 14.7 million for pension risks (first-time disclosure). The amount for business risks was EUR 29.9 million and describes the risk that realised profit will be lower than expected profit. If these business risks occur, the risk cover consumption would amount to EUR 5.3 million (previous year: EUR 7.5 million) in the 2019 financial year, based on budgeting assumptions.

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Pension risks Hidden liabilities in connection with pension obligations at dwpbank are deducted from equity when calculating the risk cover assets. The amount of the economic value of the obligations and the hidden liabilities is determined by the expected value of the material influencing factors such as discount rate, pension trend and mortality. Any potential fluctuation in the influencing factors and the resulting changes in the economic value of the obligation and the hidden liability are included in the analysis of riskbearing capacity as a pension risk.

Business risks dwpbank includes strategic and economic risks in business risks on the basis of a single year. Business risks manifest in net income and their effect describes the risk that actual results deviate from planned results. At the beginning of each year, the potential deviation from projected net income is calculated to the 99.9% quantile p.a. based on empirical observations of deviations between projected and realised figures for net income for the year. This unlikely negative deviation amounted to EUR 29.9 million as at 31 December 2018. If this potential plan deviation would lead to a negative result for the year for dwpbank, the amount of the possible loss represents risk cover consumption in the risk-bearing capacity analysis. Based on profit planning of EUR 24.5 million, the possible loss in this case for the 2019 financial year amounts to EUR 5.3 million.

The business risks subject to empirical identification include for instance adverse developments pursuant to the medium-term planning such as the possibility of adverse variations in revenues (transaction volumes, new business) and expenses (project portfolio, staff downsizing).

Liquidity risks In accordance with GS 4.1(4) MaRisk, liquidity and insol-vency risks are not included in the risk-bearing capacity analysis at dwpbank as they cannot generally be reason-ably limited or covered by risk coverage potential such as capital.

dwpbank has only limited exposure to liquidity risk as, in line with its business model, it is not subject to call risk due to unexpected payment obligations. Payment claims and obligations in respect of clients resulting from securities processing and financial brokerage operations are usually offset by obligations and claims payable on demand in the same amount.

Liquidity planning instruments with different time-frames ensure that dwpbank is able to meet its payment obliga-tions at all times.

The liquidity cover ratio (LCR) (as at 31 December 2018: 1,016.83%) is integrated into dwpbank’s monthly risk report as a risk indicator and is subject to internal floors. The ratio was clearly above the limits throughout 2018. In addition, dwpbank monitors compliance with risk toler-ance thresholds and liquidity reserves and the occurrence of possible liquidity shortages.

3.3.5 Outsourcing and risk communicationThe value chains in industrial banking are characterised by outsourcing chains. In the case of securities transac-tions, outsourcing relationships exist between clients and dwpbank as well as between dwpbank and its providers.

In addition to competitive, cost and quality benefits, outsourcing also results in a transfer the risk outsourced. While a bank itself was exposed to the operational risks of settlement before outsourcing, it outsources these risks to the insourcer. A new factor is the risk emerging from the outsourcing relationship, referred to as the outsourc-ing risk. MaRisk requires this outsourcing risk to be managed, monitored and controlled. The risk manage-ment and controlling processes must guarantee that the material risks – including those of outsourced activities and processes – are detected early on, tracked in full and can be appropriately presented. The role of the insourcer is to manage, monitor and control its own risk. This is done based on its risk preference and business considera-tions.

For all outsourcing activities, the service and quality standards agreed with the client for the out-sourced processes and activities must be observed in accordance with the respective service level agreements.

dwpbank has adopted an internal policy on outsourcing dwpbank services within the meaning of section 25b KWG. It provides regulations for specific activities and duties with regard to outsourcing relationships and measures for uniform provider management.

In line with the requirements of MaRisk (GS 9(2)), dwpbank has established a uniform risk analysis for determining the materiality of outsourcing. The relevant organisational units are included in the preparation of this

risk analysis, as is Internal Audit within the scope of its responsibility.

All outsourced dwpbank operations are mapped, including data centre services in particular. These outsourcing relationships are assigned to outsourcing officers who ensure the management, monitoring and controlling of the contractual performance and reporting. They report annually on compliance with the requirements set forth under section 25b KWG and GS 9(7) MaRisk by way of an updated risk analysis. Based on these updates, Central Risk Management prepares a summary outsourcing report for the Board of Management. The objective of this outsourcing report is to provide an overview of relevant insourcer information against the backdrop of applicable legal requirements so as to assess the quality of the relationship and the outsourcing risk to which dwpbank is exposed. Outsourcing relationships are taken into account in the risk management system of dwpbank, particularly when quantifying operational risks using the AMA.

dwpbank provides its clients with extensive outsourcing and risk information during the year. dwpbank bundles this information in an annual outsourcing and risk report, which is made available to clients. An electronic version is also available on dwpbank’s extranet. The report and its content are updated each year and developed further. The outsourcing and risk report is complemented in electronic form by quarterly information on the risk map and on outsourcing management.

3.3.6 Continuous action managementAction management primarily represents the risk control and monitoring functions based on the identification, evaluation and communication of risks within the risk management cycle. Action management consists of a number of risk management instruments and reports. Risk mitigation and risk transfer are the main options for controlling risks. Risk reduction activities were also implemented in 2018.

In dwpbank’s risk management system, operational risks are systematically measured in order to ensure that they can be objectively compared and controlled, particularly on the basis of value-at-risk (VaR).

Significant risk is generally countered through avoidance or measures to mitigate or transfer risks. Business aspects, such as the cost of risk mitigation or transfer and the earnings contributions of the divisions affected, are taken into account.

Stimuli for risk controlling activities are also derived from the comparison of risk amounts and the risk cover assets.

Based on the results of risk analyses, the available options for risk avoidance, mitigation, transfer and acceptance are discussed at the meetings of the Risk Committee.

Changes in the risk situation are monitored within the risk management system. Follow-up pro-cesses have been established for critical changes in the risk situation, risk events involving significant losses and ad hoc risk reports.

dwpbank has also taken out insurance for operational risks as an instrument for risk mitigation and transfer in addition to establishing business continuity planning that allows an appropriate response to disruptions in business processes at all times.

3.3.7 Trend development and forecastThe number of risk events reported in 2018 was at the already low level observed in the past two years. Statisti-cally, there is a highly positive correlation between the number of settlements and transactions and the number of risk events reported in a year.

By contrast, there is no statistical correlation between the number of events reported annually and the annual loss total. As is typical for operational risks, annual loss totals are characterised not by the frequency of losses but rather by unsystematic occurrences of large losses. The total of realised losses for 2018 was below average.

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Indicators for Production revealed a positive overall situation in 2018. An analysis of these indicators does not indicate any systemic weaknesses. For the most part, the events which triggered indicators were dealt with in a timely manner.

In the autumn and winter months, the number of sick days taken was significantly higher; the number was at a somewhat higher level than in the previous year.

In 2018, the liquidity coverage ratio (LCR) was at a good level. The overall ratio as at 31 December 2018 (18.14%) did not change significantly as compared to the figure at the end of 2017; the ratio was above the required minimum.

At the Client Support Centre, availability fell short of the prior-year level while at the same time the volume of calls declined. The overall number of external tickets issued in 2018 was up year on year. This was due to queries related to MiFID II/MiFIR and the investment tax reform, among other reasons.

WP2 system availability remained virtually constant year on year and the risk indicator “online availability of WP2” was constantly at 100%. The systems availability indica-tors for WPDirect and WPIO were at the same high level of the prior-year figures, at 99.44% and 99.82%, respectively. The number of IT disruptions classified as highly critical was again low. The high degree of overall system availabil-ity for the WP2 system family achieved in recent years was maintained in financial year 2018 with respect to disrup-tions affecting clients.

The overall “operational stability” indicator, which com-prises weighted individual indicators from IT and securities settlement (including system availabilities and cancellation rates), stood at 99.71% in 2018 (previous year: 99.49%) and was thus at a good qualitative level. For 2019, the figure for “operational stability” is expected to remain at the level of the two previous years.

Over the course of the year, the provider management indicators were at a good level.

Security issues (IT security indicator) primarily resulted from security breaches that were discovered in the form of bugs in software and external attacks. There are no expectations that the number of security issues will decrease.

The contingency management risk indicators were at a non-critical level, roughly unchanged year on year.

These effects will also be reflected in the evaluation of the risk assessments and scenario analyses.

It is expected that a higher amount will be recognised for operational risks in 2019 due to a change in the AMA model, of which BaFin has been notified.

Expectations-based simulations of risk-bearing capacity for each of the four quarters of 2019 revealed a total annual average risk amount of EUR 93.8 million across all observed risk categories and an expected average risk cover assets of EUR 120.9 million.

3.3.8 Work to remedy the findings from an audit pursuant to section 44 of the German Banking ActIn accordance with section 44 (1) KWG, BaFin had ordered an audit of dwpbank’s business operations for 2018. In addition to the propriety of the business organisation pursuant to section 25a (1) KWG, the audit focused on assessing the appropriateness of the actions taken to remedy the findings of the 2015 MaRisk audit. The Bundesbank auditors made findings in respect of calcula-tions used in dwpbank’s AMA model, the inclusion of pension obligations and the currency of guidelines and instructions. Findings relating to pension risks and guidelines and instructions, among other topics, had already been remedied by 31 December 2018. The remaining findings with respect to quantification of operational risks in the AMA model will be remedied on schedule as part of the risk bearing capacity report as at 31 March 2019.

3.4 Outlook and report on opportunities

3.4.1 Outlook for the economy and financial markets Based on market estimates, the eurozone has lost some momentum after years of positive growth. In its “Markets and Trends 2019” capital market outlook, for example, Helaba forecasts that gross domestic product (GDP) in the eurozone will grow by 1.9% in 2018 and 1.6% in 2019.

The central economic conflicts continue to influence the markets. This is also the case for conflicts within the EU between the European Commission and individual govern-ments, such as the Italian budget dispute. The still-unre-solved outcome of Brexit negotiations continues to cause uncertainty for the internal European market. This poses risks for Germany in particular, since the United Kingdom is the third-largest export market for German businesses.

Rising costs for energy and food contributed significantly to higher inflation in 2018. Due to a more restrictive monetary policy on the part of the ECB and rising consumer spending, inflation is expected to continue to increase slightly. In 2019, the core rate of inflation in the eurozone is likely to be somewhat higher, rising slightly to 1.9%. This remains within the ECB’s defined price stability target of 2.0% in the eurozone. Relief over the course of the year will come in the form of lower prices for energy and food.

In our judgment, the German economy remains on stable footing. Adjusted for calendar effects, economic growth amounted to 1.5% of GDP for 2018, thus below the prior-year figure of 2.5%. We expect an uptick in economic momentum in Germany beginning in mid-2019. Growth in private consumer spending will be weighed down by factors affecting foreign trade and the resulting reluc-tance on the part of investors. Overall, disposable income will increase thanks to higher wage agreements and rising social security benefits. The resulting GDP growth is expected to amount to 1.5% in 2019.

Due to moderate valuations of euro-denominated shares and the expected economic tailwinds, stock markets are expected to see rising share prices over the course of 2019. For 2019, the economists and analysts from German and foreign banks expect that the DAX will climb to 12,600 points. This trend may be bolstered be the easing of political uncertainties.

3.4.2 Regulatory and market requirements affec- ting dwpbank’s line of business Regulatory and market infrastructure-driven requirements will also impact dwpbank’s business activities in 2019. Added to this are specific requirements for the core business area of securities services; these are already discernible from today’s perspective and will need to be implemented in the coming years.

Following the migration of the German market to Europe’s integrated securities settlement platform, TARGET2-Secu-rities (T2S), dwpbank will continue to support the resulting post-launch tasks in financial year 2019 and introduce new functions on the payments and physical delivery sides. In cooperation with Clearstream Banking AG (CBF), the CBF project OneClearstream will see the transfer of securities settlement activities for additional national markets to the T2S platform in 2019. In doing so, dwpbank links its clients to the standardised European post-trade infrastructure.

In financial year 2019, legislative proposals will aim to align the financial sector with sustainable, as well as environmentally and socially responsible, investment. In this context, it is currently planned that existing invest-ment advising processes will need to be modified and amended.

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Further changes are also expected in 2019 in connection with the investment tax reform since the German Ministry of Finance has yet to publish final application guidance. Moreover, the legislator will be obligated to transpose the EU Directive “Reportable cross-border arrangements” (DAC6) into national law in 2019. Provided that the legislator does so within the timeframe set out by the EU, this is expected to result in considerable effort and expense to conduct the relevant analyses, as well as to implement technical adjustments to our systems beginning in the second half of 2019.

New regulatory provisions are due to be implemented over the course of 2019, entailing significant changes in the securities market relating to settlement discipline and internalisation based on Regulation (EU) No. 909/2014 on improving securities settlement in the European Union; This will affect dwpbank, its clients and their customers and will be bundled in an internal implementation project ICOM (Implementation CSDR / OneClearstream / Market infrastructure). 2019 will therefore be marked by the relevant implementation and testing activities, after preparations and conceptual design had already begun in 2018. The aim is for dwpbank to comply with its own statutory obligations, and to develop a catalogue of services to support its clients comply with their statutory obligations.

In addition, the second Shareholder Rights Directive will be transposed into German law in mid-2019 in the form of the relevant implementing act (Zweites Aktionärs-Richtlinie-Umsetzungs-Gesetz, “ARUG II”). The overall aim of the Directive is to further improve the participation of shareholders in listed companies and to facilitate cross-border information and the exercise of sharehol-ders’ rights. dwpbank offers services including the dispatch of shareholder meeting documents on behalf of its clients and shareholder identification, which results in a requirement that it implement the provisions of the Directive.

dwpbank will also step up its efforts to support its clients in complying with the requirements as custodians (KAGB services). For this purpose, dwpbank offers a regular custodian assessment, ongoing monitoring of markets and depositories, and a tool providing newsflashes, ratings and market reports.

The implementation of regulatory requirements will continue to represent a not inconsiderable burden on the overall banking sector and dwpbank. dwpbank leverages the bundled implementation of regulatory and market requirements for its clients to continue strengthening its position as a leading securities services provider. This opens up opportunities for dwpbank to work more closely with its existing client base and to gain new clients, including by expanding the product and service portfolio.

3.4.3 Opportunities for dwpbank’s long-term economic development As in previous years, quantitative developments on the securities market are a key factor shaping dwpbank’s financial results.

dwpbank expects stable transaction volumes and a slight decrease in the number of securities accounts. The anticipated stable market environment opens up opportunities for dwpbank to leverage additional potential for implementing optimisation initiatives in subsequent years. The requisite activities to enhance workflow efficiency and realise additional revenue potential are being prepared and successively put in place as part of the “dwpbank 4.0” programme.dwpbank sees particular additional revenue potential in acquiring defined new clients and in expanding cross-selling activities within the German Savings Banks Financial Services Network and the German Cooperative Financial Services Network. Among other things, this will be achieved by expanding back-office processing as part of BOSC services, reinvestment management and the institutional services offering.

On the cost side, finalising the implementation of the staff restructuring measures set out in the “dwpbank 2018” partial reconciliation of interests will have a lasting positive effect. Further cost reductions will be achieved by systematically developing workflows, streamlining change processes and enhancing efficiency within the production and staff functions. Additional cost effects will be genera-ted by outsourcing activities to dwp Service GmbH and dwp Software Kft.

dwpbank is pushing ahead with modernising its IT platform to guarantee a securities settlement platform that is modern, efficient, scalable and fit for the future as part of the MoveWP3 programme. The aim is to establish the technical conditions for the requisite reduction in costs and increase in flexibility, as well as the long-term develop-ment capability of the IT systems. The aim is for the further technical development of the settlement systems to be achieved in several stages, with the core advances being realised by 2023.

In the view of the Board of Management, the initiatives outlined will be systematically implemented in the pursuit of dwpbank’s long-term goals and will lay a solid foundati-on for further business development. On the basis of the activities presented above and the associated planning, dwpbank expects to generate earnings before taxes at a level on par with the results for 2018.

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Assets from 31. Dezember 2018

31 Dec.2018 31 Dec.2017

Aktiva EUR EUR Tsd. EUR

1. Casha) Central bank balances of which: with Deutsche Bundesbank EUR 0.00 (previous year: EUR 0 thousand)

0,00 0

2. Loans and advances to other banks 0,00

a) Payable on demand 206.508.091,43 629.212

206.508.091,43

3. Loans and advances to clients 7.572.421,93 5.7924. Bonds and other fixed-income securities

a) Bonds and notes aa) Of public-sector issuers of which: eligible at Deutsche Bundesbank EUR 120,511,610.80 (previous year: EUR 118,897 thousand) 120.511.610,80 118.8975. Equities and other non-fixed-income securities 99.999.930,27 100.000

6. Equity investments 320.000,00 320

7. Shares in affiliated companies 651.697,32 6528. Trust assets of which fiduciary loans: EUR 0.00 2.815.882,19 4.308

9. Intangible fixed assetsa) Internally generated industrial and

similar rights and assets 34.957.130,68 32.795b) Purchased concessions, industrial

9. a) and similar rights and assets and9. a licences in such rights and assets 2.328.783,00 1.350

37.285.913,68

10. Tangible fixed assets 6.695.000,00 7.210

11. Other assets 10.228.053,01 17.779

12. Prepaid expenses 3.735.986,38 5.773

13. Deferred tax assets 30.431.939,00 28.836

Total assets 526.756.526,01 952.924

31 Dec.2018 31 Dec.2017

Passiva EUR Tsd. EUR

1. Liabilities to other banks

a) Payable on demand 106.389.805,07 531.975

106.389.805,07

2. Liabilities to clients

a) Other

a) aa) Payable on demand 794.291,22 8.423

794.291,22

3. Trust liabilities 2.815.882,19 4.308

of which fiduciary loans: EUR 0.00

4. Other liabilities 13.275.814,52 25.247

5. Deferred income 435.440,37 447

5a. Deferred tax liabilities 11.127.554,34 10.411

6. Provisions

a) Provisions for pensions and similar

obligations 117.093.566,00 103.030

b) Provisions for taxes 5.421.145,74 0

c) Other provisions 73.622.787,18 75.382

196.137.498,92

7. Equity

a) Subscribed capital 20.000.000,00 20.000

b) Capital reserves 108.416.625,67 108.417

c) Revenue reserves

ca) Legal reserves 2.000.000,00 2.000

cb) Other revenue reserves 48.285.670,52 41.171

d) Net retained profits 17.077.943,19 22.115

195.780.239,38

Total equity and liabilities 526.756.526,01 952.924

Assets

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Annual report 2018

Income statement for the period from 1 January 2018 to 31 December 2018

EUR EUR 2018 / EUR 2017 / Tsd. EUR

1. Interest income from

a) Lending and money market transactions 1.842.005,71 1.565b) Fixed-income securities and debt b) register claims 1.768.312,05 3.610.317,76 2.242

2. Interest expense -1.789.149,75 -1.409

1.821.168,01 2.399

3. Current income from

a) Equities and other non-fixed-income securities 521.608,08 12

b) Equity investments 34.990,94 30

c) Shares in affiliated companies 140.589,85 146

697.188,87 188

4. Fee and commission income 303.893.161,54 873.469

5. Fee and commission expense -64.290.590,92 -651.034

239.602.570,62 222.435

6. Other operating income 37.693.890,33 50.281

7. General and administrative expenses

a) Personnel expenses

aa) Wages and salaries -88.486.443,10 -87.396

ab) Social security, post-employment and other employee benefit costs of which: in respect of old-age pensions EUR 5,160,011.81

(previous year: EUR 5,801 thousand) -17.707.903,78 -18.072

-106.194.346,88 -105.468

b) Other administrative expenses -104.407.386,09 -99.188

-210.601.732,97 -204.657

EUR EUR 2018 / EUR 2017 / Tsd. EUR8. Amortisation and write-downs of int-

angible fixed assets and depreciation and write-downs of tangible fixed assets -11.458.107,41 -7.101

9. Other operating expenses

of which: interest on longer-term provisions: EUR 14,173,248.79 -30.900.441,47 -34.078

10. Write-downs of and allowances on loans and advances and certain se-curities and additions to provisions for credit risks -1.630.824,34 -2.409

11. Income from reversals of write-downs of loans and advances and certain securities and reversals of provisions for credit risks 52.112,30 0

12. Expenses for loss absorption -256.648,72 -40

13. Result from ordinary activities 25.019.175,22 27.018

14. Taxes on income

a) Current taxes on income -8.820.397,03 -2.915

b) Deferred taxes 879.165,00 -1.989

-7.941.232,03 -4.904

15. Net income for the financial year 17.077.943,19 22.115

16. Net retained profits 17.077.943,19 22.115

Income statement

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Annual report 2018

General information

The annual financial statements of dwpbank AG for the 2018 financial year were prepared in ac-cordance with the provisions of the German Commercial Code (Handelsge-setzbuch, “HGB”), including sections 340 et seq. in particular, and the German Regulation on Accounting by Banks (Kreditinstituts-Rechnungslegungsverordnung, “RechKredV”).

I. Accounting policiesAssets and liabilities have been accounted for in ac-cordance with German generally accepted ac-counting principles as set out in sections 252 et seq. HGB unless dictated otherwise by the special provisions of sections 340 et seq. HGB. The provisions of the RechKredV were observed.

In accordance with section 286 (3) sentence 1 HGB, the information on subsidiaries pursuant to section 285 no.11 HGB has not been disclosed.

The individual assets were measured conservatively. Loans and advances to other banks and to clients were measured at their principal amounts. Liabilities are carried at their settlement amounts.

Receivables and liabilities from the performance of payments in association with securities were recognised by the Bank as trust assets and trust liabilities respec-tively, provided the appropriate contractual bases exist.

Bonds held in the proprietary portfolio are allocated to the liquidity reserve and are measured using the strict lower of cost or market principle. Non-fixed-income securities allocated to the investment portfolio are recognised in accordance with the less strict lower of cost or market principle. Equity investments and shares in affiliated companies are carried at cost less write-downs.

Finite-lived items of tangible fixed assets are carried at cost and reduced by depreciation reflecting their expected useful lives. These useful lives are generally based on the depreciation tables published by the tax authorities. Low-value assets are treated in accordance with the relevant tax provisions.

The bank has exercised the option provided under section 248 (2) HGB to capitalise internally generated intangible assets.

Notes to the 2018 annual financial statements

Provisions were recognised at their settlement amount; longerterm provisions were discounted accordingly.

Pension and early retirement provisions were calculated in line with actuarial principles, applying the projected unit credit method. The settlement amount was calcu-lated using the 2018 G Heubeck mortality tables and a matched-term interest rate of 3.21% (10-year average). The adjustment of the discount rate resulted in an increase in provisions by EUR 869 thousand. Further-more, wage and salary increases of 2.50% and a pension trend of 1.50% to 2.00% were assumed. Other provisions take into account all identifiable risks and uncertain obligations as at 31 December 2018.

During the year under review, dwpbank made a change to the presentation of bonuses from funds and securities (sales bonuses passed through the brokerage business), which had previously been reported under fee and commission income and fee and commission expenses. In order to present a truer and fairer view of the Bank’s results of operations, pass-through items resulting from the securities settlement business are no longer reported in the Bank’s income statement. The change in presentation had no effect on the amount of net com-mission income. Please refer to sections III.4 and III.5 for information on the influence the change in presentation had on the amounts reported for fee and commission income and expenses.

In accordance with section 246 (2) HGB, the Bank offset assets and liabilities to the necessary extent. These relate to the provisions for partial retirement and the corresponding plan assets.

Foreign currency receivables and liabilities were trans-lated at the ECB reference rates of 31 December 2018 in accordance with section 340h HGB.

The Bank presents deferred tax assets and liabilities separately under assets and under liabilities (section 274 (1) HGB). Deferred taxes were calculated using tax rates of 15.83% for the tax loss carryforward and 31.83% for differences in balance sheet line items.

The proposal for the appropriation of profits was prepared taking into account the restrictions on distribu-tion set out in section 253 (6) and section 268 (8) HGB.

II. Notes to the balance sheet1. Loans and advances to other banksThe carrying amount (EUR 206,504 thousand) relates exclusively to loans and advances payable on demand (previous year: EUR 629,212 thousand). Of this amount, EUR 109,901 thousand (previous year: EUR 544,888 thousand) is attributable to the Bank’s operating activities in the securities business.

Loans and advances include foreign currency amounts of EUR 41,519 thousand (previous year: EUR 15,431 thou-sand). Loans and advances to banks in which dwpbank holds an equity investment totalled EUR 111,374 thou-sand (previous year: EUR 516,613 thousand).

2. Loans and advances to clientsOf the EUR 7,572 thousand in loans and advances to clients (previous year: EUR 5,792 thousand), EUR 3,188 thou-sand (previous year: EUR 3,670 thousand) related to outstanding invoices as at the balance sheet date. This includes loans and advances to affiliated companies of EUR 661 thousand (previous year: EUR 53 thousand). Receivables amounted to EUR 4,384 thousand (previous year: EUR 2,122 thousand); these related to the Bank’s operating activities in the securities business. These are loans and advances to counterparties. The loans and advances in this item denominated in a foreign currency amount to EUR 3,041 thousand (previous year: EUR 368 thousand).

3. Bonds and notes This item consists entirely of fixed-income, listed securi-ties. These relate primarily to bonds issued by the Federal Republic of Germany and the Kreditanstalt für Wiederaufbau. These securities are allocated to the liquidity reserve.

Bonds and notes serve as collateral for dwpbank’s participation in Xetra trading as a CCP of EUREX Clearing AG and in trading on the Frankfurt Stock Exchange, as well as to secure the domestic transac-tions settled via the regional Bundesbank office (Landeszentralbank) account. They are deposited in a pledged securities account with Clearstream. A nominal EUR 14,390 thousand of the securities reported as part of this item matures in 2019.

4. Equities and other non-fixed-income securitiesThe carrying amount of this item relates to the unlisted units of a German institutional fund (Spezialfonds) launched for dwpbank AG. The fund serves to generate returns in excess of the money market interest rate and can be liquidated at short notice. It is carried at EUR 1,462 thousand below market value, which was EUR 101,462 thousand as at the end of the year.

As at yearend, the fund predominantly contains highly rated securities issued by euro area governments and German and European institutions.

5. Equity investments dwpbank holds a 26% interest in CINTAC A/S, Roskilde, Denmark, which it carries at a value of EUR 320 thou-sand. The shares are not listed. The company’s share capital amounts to DKK 569 thousand (EUR 76 thou-sand); in the last full financial year (2018), net income for the financial year of DKK 1,291 thousand (EUR 173 thousand) was generated.

6. Shares in affiliated companies dwpbank holds a 100% interest in dwp Software Kft., Budapest, carried at the original cost of EUR 113 thou-sand. In addition, dwpbank holds a 100% interest in dwp Service GmbH, Halle/Saale, which is carried at cost in the amount of EUR 539 thousand. The shares of neither company are listed.

In accordance with section 290 (5) HGB, consolidated financial statements were not prepared since the subsidiaries need not be included in consolidated financial statements on account of them being insignifi-cant in accordance with section 296 (2) HGB.

The longterm financial assets described in items 4 to 6 developed as follows in the year under review.

Notes to the 2018 annual financial statements

50 51

Annual report 2018

Tangible fixed assets

EUR thousand Intangible fixed assets Tangible fixed assets

Historical cost 152,345 25,539

Additions in the financial year 13,543 620

Disposals in the financial year 1,938 0

Depreciation, amortisation and write-downs on disposal 1,858 0

Depreciation, amortisation and write-downs (cumulative) 126,664 19,464

Carrying amount at 31 Dec. 2018 37,286 6,695

Carrying amount at 31 Dec. 2017 34,145 7,210Depreciation, amortisation and write-downs in the financial year 10,323 1,135

10. Other assetsThe carrying amount of EUR 10,228 thousand (previous year: EUR 17,779 thousand) includes loans and advances from the Bank’s operating activities in the securities business in the amount of EUR 47 thousand (previous year: EUR 537 thousand).

This item also includes EUR 4,399 thousand in receivables from advance salary payments for January 2019, EUR 1,679 thousand in supplier credits and EUR 1,607 thousand in receivables from depository fees not yet charged on to clients for December 2018.

The reinsurance claims from insolvency insurance for partial retirement obligations reported were offset against the corresponding provisions for partial retirement in accordance with section 246 (2) HGB. The amount of cover assets as at 31 December 2018 was EUR 357 thousand.

11. Prepaid expensesThis item includes EUR 3,736 thousand in prepaid advance payments by dwpbank only.

12. Deferred tax assets Deferred tax assets amounting to EUR 30,432 thousand resulted from differences in the measurement of balance sheet items in the tax accounts and in the financial accounts.

This relates primarily to the Spezialfonds (tax recognition of retained income) and the difference in the recognition of individual provisions under tax law, in particular pension and restructuring provisions. A further EUR 1,596 thousand results pro rata from the effects in income of 2018.

13. Liabilities to other banksThe EUR 106,373 thousand in liabilities payable on demand (previous year: EUR 531,975 thousand) resulted almost exclusively from the Bank’s operating activities in the securities business and included EUR 44,123 thousand (previous year: EUR 16,429 thousand) denominated in foreign currency.

Liabilities to banks in which dwpbank holds an equity interest totalled EUR 33,752 thousand (previous year: EUR 4,283 thousand).

14. Liabilities to clients Liabilities to non-banks amounted to EUR 794 thousand (previous year: EUR 8,423 thousand); these related exclusively to liabilities from the Bank’s operating activities in the securities business. This included EUR 6 thousand in liabilities denominated in foreign currency.

Shares in affiliated companies

EUR thousand

Equities and other non-fixed-income

securitiesEquity

investmentsShares in affiliated

companies

Historical cost 100,000 320 652

Additions in the financial year 0 0 0

Disposals in the financial year 0 0 0

Depreciation, amortisation and write-downs on disposal 0 0 0

Depreciation, amortisation and write-downs (cumulative) 0 0 0

Carrying amount at 31 Dec. 2018 100,000 320 652

Carrying amount at 31 Dec. 2017 100,000 320 652

Depreciation, amortisation and write-downs in the financial year 0 0 0

7. Trust assetsThe trust assets reported separately here relate entirely to loans and advances to other banks resulting from payments associated with securities settlement. This item is offset by trust liabilities to other banks in the same amount.

8. Intangible fixed assets This item consists primarily of software developed internally by the Bank. The Bank identified EUR 11,762 thousand (previous year: EUR 15,942 thousand) of its project work as eligible for capitalisation in the financial year and recognised this amount as internally generated intangible assets.

Purchased intangible assets relate exclusively to software. Software is carried at cost less amortisation. The amortisa-tion period is four years.

9. Tangible fixed assets Tangible fixed assets are finitelived operating assets and business equipment, as well as technical equipment and machinery. The useful life of a tangible fixed asset takes account of the asset’s physical life, technical obsolescence and contractual and statutory restrictions.

Changes in fixed assets are presented in the statement of changes in fixed assets.

Notes to the 2018 annual financial statements

52 53

Annual report 2018

15. Other liabilities The carrying amount of EUR 13,276 thousand (previous year: EUR 25,247 thousand) includes liabilities from the Bank’s operating activities in the securities business amounting to EUR 4,505 thousand (previous year: EUR 4,540 thousand). This item also includes outstanding VAT liabilities of EUR 3,110 thousand (previous year: EUR 1,400 thousand), outstanding payroll and church tax of EUR 1,723 thousand (previous year: EUR 1,915 thousand) and trade payables amounting to EUR 1,230 thousand (previous year: EUR 15,363 thousand). Other liabilities includes items denominated in foreign currencies amounting to EUR 45 thousand (previous year: EUR 20 thousand). Liabilities to banks in which dwpbank holds an equity investment totalled EUR 20 thousand (previous year: EUR 75 thousand).

16. Deferred tax liabilities All of the deferred tax liabilities (EUR 11,128 thousand) relate to the capitalisation of internally generated intangible fixed assets. In 2018, deferred tax liabilities were increased by EUR 716 thousand through profit or loss.

17. Provisions Provisions totalled EUR 197,367 thousand as at 31 December 2018 (previous year: EUR 178,412 thousand). The difference in pension provisions in accordance with section 253 (6) HGB amounts to EUR 22,929 thousand.

Under other employee-related provisions, the provision for

partial retirement was offset against the corresponding plan assets of EUR 357 thousand in accordance with section 246 (2) HGB.

Other provisions include provisions for outstanding invoices in the Bank’s operating activities in the securities business, including the settlement of interest and fees (EUR 9,243 thousand), provisions for IT and consulting expenses (EUR 8,140 thousand) and other administrative expenses (EUR 9,544 thousand).

18. Equity Subscribed capital relates exclusively to dwpbank’s subscri-bed capital of EUR 20,000,000, which is divided into 20,000,000 registered voting shares with restricted transfera-bility. The share capital is fully paid in as follows: DZ BANK 50.00%; Sparkassenverband Westfalen-Lippe 20.00%; Rheinischer Sparkassen- und Giroverband 20.00%; BayernLB 3.74501%; Landesbank Hessen-Thüringen 3.74499%; HSH Nordbank 2.51%. The Bank did not hold any treasury shares.

In the financial year, EUR 7,115 thousand was transferred from the net retained profits of the previous year to other revenue reserves.

Provisions

EUR thousand 31 Dec. 2018 31 Dec. 2017

Provisions for pensions 117,094 103,030

Other employee-related provisions 24,879 27,044

Restructuring provisions 19,236 24,882

Provisions for taxes 5,421 0

Holiday leave and flexitime 2,580 2,519

Other provisions 26,927 20,937

III. Notes to the income statement1. Interest incomeInterest income from lending and money market transac-tions amounting to EUR 1,820 thousand (previous year: EUR 1,561 thousand) relates to the operating activities in the securities business and results from interest on the balances of clients’ current accounts used for this purpose, depositories and payment service providers.

Interest from fixed-income securities results from the securities deposited as collateral.

2. Interest expenseInterest expenses relate exclusively to EUR 1,789 thousand in current account interest (previous year: EUR 1,409 thousand) on accounts used in the operating activities of the securities business.

3. Current income Current income from equities and other fixed-income securities resulted exclusively from a distribution by a German institutional fund (Spezialfonds), and income from affiliated companies resulted exclusively from the dividend paid by dwp Software Kft. Income from equity investments consisted mainly of the dividend from CINTAC A/S.

4. Fee and commission income At EUR 303,893 thousand, fee and commission income was significantly lower than in the previous year (EUR 873,469 thousand). This was due to the change in the presentation of the bonus payments from funds and securities (sales bonuses passed through the brokerage business), which due to their nature as pass-through items are no longer reported in the income statement as of the current financial year in order to

present a truer and fairer view of the Bank’s results of opera-tions. During the previous year, fee and commission income included EUR 567,632 thousand in such bonuses. Had there been no change in presentation, fee and commission income for the previous year would have amounted to EUR 305,837 thousand.

Fee and commission income during the financial year amount-ing to EUR 271,213 thousand (previous year: EUR 223,431 thousand) resulted from full-service securities services. Additional income amounting to EUR 18,625 thousand (previous year: EUR 65,130 thousand) resulted from deposito-ries’ transaction fees passed on to clients. The shift from full service and passing on resulted form the introduction of the new pricing model in 2018, which takes custodian fees into account as a price component. Brokerage fees and expenses amounted to EUR 11,800 thousand (previous year: EUR 14,860 thousand).

5. Fee and commission expense Fee and commission expenses amounted to EUR 64,291 thousand (previous year: EUR 651,034 thousand) and can be broken down as follows:

DThe significant decrease in fee and commission expenses resulted from the change in the presentation of bonuses analogously to the change for fee and commission income. During the previous year, fee and commission expenses included EUR 567,630 thousand in such bonus expenses. In light of the change in presentation, fee and commission income for the previous year would have amounted to EUR 83,404 thousand. Other fee and commission expense relates primarily to brokerage fees and expenses of EUR 10,101 thousand (previous year: EUR 12,677 thousand).

Fee and commission expense

EUR thousand 31 Dec. 2018 31 Dec. 2017

Securities account and transaction fees 49,090 66,928

Other fee and commission expense 15,201 16,476

Sales commissions paid 0 567,630

Notes to the 2018 annual financial statements

54 55

Annual report 2018

6. Other operating income Other operating income of EUR 37,694 thousand (previous year: EUR 50,281 thousand) can be broken down as follows:

Other operating income essentially consists of postage (EUR 1,703 thousand), income from leasing (EUR 299 thousand) and income from discounts (EUR 263 thousand).

The remaining miscellaneous other operating income essentially results from the invoicing of services. In accord-ance with section 246 (2) HGB, income of EUR 7 thousand was offset against other operating expenses.

Contrary to the requirements of section 277 (5) sentence 2 HGB, dwpbank reports its foreign exchange result on a net basis under this item. The is due to the fact that, for technical reasons, foreign exchange gains and losses are overstated in the income statement and recognising these on a gross basis in other operating income and other operating expenses would give an incorrect view.

7. Other administrative expenses Other administrative expenses totalling EUR 104,407 thousand (previous year: EUR 99,188 thousand) related to IT operation and development expenses in the amount of EUR 57,838 thousand (previous year: EUR 49,602 thou-sand). Consulting fees in the amount of EUR 15,803 thousand (previous year: EUR 18,120 thousand) and building management expenses in the amount of EUR 13,606 thousand (previous year: EUR 13,878 thousand) were also incurred in the reporting period. Further compo-nents of this item include expenses relating to information gathering (market data services), which amounted to EUR 6,540 thousand (previous year: EUR 6,479 thousand), and other personnel expenses and non-labour costs relating to personnel, which amounted to EUR 5,652 thousand (previous year: EUR 6,635 thousand).

8. Other operating expenses Other operating expenses amounted to EUR 30,900 thousand (previous year: EUR 34,078 thousand), of which EUR 14,173 thousand (previous year: EUR 10,351 thou-sand) resulted from the interest cost in relation to longer-term personnel provisions. Furthermore, this item includes non-deductible input tax of EUR 8,575 thousand (previous year: EUR 9,812 thousand) and an addition to an existing restructuring provision amounting to EUR 3,597 thousand (previous year: EUR 7,263 thousand).

In accordance with section 246 (2) HGB, expenses of EUR 7 thousand were offset against other operating income.

9. Write-downs of and allowances on loans and advances and certain securities and additions to provisions for credit risks The expenses reported under this item relate exclusively to write-downs of securities held in the liquidity reserve, where such write-downs were recognised in accordance with the strict lower of cost or market principle.

10. Taxes on income EUR 8,950 thousand of reported current taxes related to the result from ordinary activities of the past finan-cial year. A EUR 129 thousand reimbursement resulted from prior-year tax reimbursements.

Total income of EUR 879 thousand (previous year: EUR 1,989 thousand expense) resulted from deferred taxes.

11. Return on capital The return on capital, which under section 26a of the German Banking Act (Kreditwesengesetz, “KWG”) is calculated as net income for the financial year divided by total assets, amount-ed to 3.24%. The meaningfulness of the return on capital is limited since dwpbank’s total assets are heavily dependent on the volume of settled securities transactions and thus cannot be actively controlled by the Bank.

Other operating income

EUR thousand 31 Dec. 2018 31 Dec. 2017

IT services (incl. migrations) 19,708 23,646

Foreign exchange result 7,802 8,353

Reversal of provisions 3,740 6,089

Miscellaneous other operating income 6,443 12,193

IV. Report on post-balance

sheet date eventsNo significant events or transactions occurred after the balance sheet date.

V. Other disclosures1. EmployeesThe average number of people employed by the Bank (full-time equivalents) in the financial year was 1,242. Of that number, 838 were employed full-time and 404 parttime. On 31 December 2018, the Bank had 1,234 active employees, of which 852 were full-time and 382 part-time. Additionally, the Bank employed three members of the Board of Management as at 31 December 2018, as well as 31 inactive employees.

2. Total remuneration of executive bodies and recognised provisions for pensions The total remuneration paid to members of the Board of Management in the year under review was EUR 1,583 thousand. Remuneration of EUR 418 thousand was paid to former members of the Board of Management. Additionally, provisions for pensions totalling EUR 19,136 thousand were also recognised for this group of people. Provisions of EUR 180 thousand were recognised for the remuneration of dwpbank’s Supervisory Board for the past financial year.

3. Total fee for auditor Expenses of EUR 349 thousand were incurred for the activities of the auditor in the financial year. Of this figure, EUR 318 thousand was attributable to audit services and EUR 31 thousand to other assurance services.

4. Development expenses During the financial year, the Bank incurred a total of EUR 45,174 thousand (previous year: EUR 49,908 thousand) in expenses for development activities. These development activities were reviewed to ascertain whether they were subject to capitalisation and, if the conditions were met, were recognised on the balance sheet. EUR 11,762 thousand was capitalised as intangible assets in the financial year.

5. Contingent liabilities not shown on the face of the balance sheet Lease collateral in the form of a bank guarantee was provided to the lessor on behalf of dwp Service GmbH, Halle.

6. Amounts excluded from distribution A total of EUR 77,190 thousand was excluded from distribution. That amount comprised EUR 22,929 thousand in accordance with section 253 (6) HGB and EUR 54,261 thousand in accordance with section 268 no. 8 HGB. The amounts excluded from distribution pursuant to section 268 HGB consisted of net deferred tax assets and liabilities (EUR 19,304 thousand) and capitalised internally gener-ated intangible assets (EUR 34,957 thousand).

7. Proposal for the appropriation of profits The Board of Management proposes the following appropriation of profits:

“The net retained profits for the 2018 financial year amounting to EUR 17,077,943.19 shall be appropriated as follows:

1. Transfer to revenue reserves amounting to EUR 17,077,943.19. 2. No profit shall be carried forward.”

8. Members of the Board of Management The following people were members of the Board of Manage-ment of dwpbank in the year under review:

▪ Dr Heiko Beck, Bensheim, Corporate Management and Client Management

▪ Thomas Klanten, Bottrop, IT, Finance and Risk Management

▪ Markus Neukirch, Oberursel, Operations

9. Positions held by members of the Board of Management in supervisory bodies of other companies Thomas Klanten is a member of the Exchange Council of the Düsseldorf Stock Exchange.

Notes to the 2018 annual financial statements

56 57

Annual report 2018

10. Members of the Supervisory Board In accordance with the Articles of Association, the Bank’s Supervisory Board comprises 15 members; the following people were members of the Supervisory Board:

▪ Thomas Ullrich Chairman Member of the Board of Management of DZ BANK AG, Frankfurt am Main

▪ Dr Klaus Tiedeken Deputy Chairman Member of the Board of Management, Kreissparkasse Köln, Cologne

▪ Dr Christian Brauckmann (since 23 April 2018) Member of the Board of Management of DZ BANK AG, Frankfurt am Main

▪ Sven Breidenbach (until 23 April 2018) Employee representative, dwpbank, Düsseldorf

▪ Ulrich Eschert (since 23 April 2018) Employee representative, dwpbank, Frankfurt am Main

▪ Dr Detlef Hosemann Member of the Board of Management, Landesbank Hessen-Thüringen Girozentrale Frankfurt am Main

▪ Marc Höttemann (until 23 April 2018) Employee representative, dwpbank, Düsseldorf

▪ Axel Jungen Employee representative, dwpbank, Düsseldorf

▪ Christoph Moers (until 23 April 2018) Employee representative, dwpbank, Munich

▪ Dr Peter Neu Head of Group Strategy and Controlling, DZ BANK AG, Frankfurt am Main

Frankfurt am Main, 5 March 2019

▪ Dr Claudia Nowak (since 23 April 2018) Employee representative, dwpbank, Frankfurt am Main

▪ Thomas Pennartz (since 1 January 2018) Managing Director, Rheinischer Sparkassen- und Giroverband, Düsseldorf

▪ Gregor Roth (until 23 April 2018) Head of Transaction Management, DZ BANK AG, Frankfurt am Main

▪ Markus Schabel (since 1 January 2018) Chairman of the Board of Management, Sparkasse Münsterland-Ost, Münster

▪ Peter Schlossmacher (since 23 April 2018 Employee representative, dwpbank, Frankfurt am Main

▪ Peter Tenbohlen Head of Operations, DZ BANK AG, Düsseldorf

▪ Christoph Ulm Employee representative, dwpbank, Munich/Deutscher Bankangestellten- Verband, Düsseldorf

▪ Dr Ulrich Walter Head of Capital Markets and Trading, DZ BANK AG, Frankfurt am Main

▪ Jürgen Wannhoff Vice President, Sparkassenverbands Westfalen-Lippe, Münster

Dr. Heiko Beck Thomas Klanten Markus Neukirch

Disclosure in accordance with section 26a (1) sentence 2 KWG as at 31 December 2018

Deutsche WertpapierService Bank AG, with registered office in Frankfurt am Main, has no foreign branches that conduct banking operations. All disclosures within the meaning of section 26a (1) sentence 2 KWG presented in the annual financial statements relate solely to the Federal Republic of Germany.

The Bank’s turnover for the period from 1 January 2018 to 31 December 2018 and the number of employees on a full-time equivalent basis as at 31 December 2018 are presented in the table below:

Country-by-Country-Reporting

Profit before tax amounted to EUR 25.0 million; the tax expense amounted to EUR 7.9 million.

The Bank did not receive any public subsidies in the financial year.

Turnover in EUR million 248,7

Interest income 3,6

Interest expense -1,8

Net interest income 1,8

Fee and commission income 303,9

Fee and commission expense -64,3

Net fee and commission income 239,6

Other operating income 38,4

Other operating expenses -31,2

Net other operating income 7,2

Number of employees on a full-time equivalent basis 1.128

Profit before tax in EUR million 25,0

Taxes on income in EUR million -7,9

Public subsidies received in EUR 0,00

Country-by-Country-Reporting

58 59

Annual report 2018

To Deutsche WertpapierService Bank AG, Frankfurt am Main

Report on the audit of the annual financial statements and of the management reportAudit opinions We have audited the annual financial statements of Deutsche WertpapierService Bank AG, Frankfurt am Main, which comprise the balance sheet as at 31 December 2018 and the income statement for the financial year from 1 January 2018 to 31 December 2018, and the notes to the financial statements, including the recogni-tion and measurement policies presented therein. In addition, we have audited the management report of Deutsche WertpapierService Bank AG, Frankfurt am Main, for the financial year from 1 January 2018 to 31 December 2018. We have not audited the corporate governance declaration pursuant to section 289f (4) of the German Commercial Code (Handelsgesetzbuch, “HGB”), as contained in section 3.2 of the management report (disclosures on the proportion of women in management positions), in accordance with German legal requirements.

▪ the accompanying annual financial statements comply, in all material respects, with the require- ments of German commercial law and give a true and fair view of the assets, liabilities and financial position of the Company as at 31 December 2018 and of its financial performance for the financial year from 1 January 2018 to 31 December 2018 in compliance with German Legally Required Accounting Principles, and

▪ the accompanying management report as a whole provides an appropriate view of the Company’s position. In all material respects, this manage - ment report is consistent with the annual financial statements, complies with German legal require- ments and appropriately presents the opportuni- ties and risks of future development. Our audit opinion on the management report does not cover the content of the above-mentioned corporate governance declaration pursuant to section 289f (4) HGB (disclosures on the proportion of women in management positions).

Pursuant to section 322 (3) sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the annual financial statements and of the management report.

Independent auditor‘s report

Basis for the audit opinions We conducted our audit of the annual financial statements and of the management report in accordance with section 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as the “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany, “IDW”). Our responsibilities under those require-ments and principles are further described in the “Auditor’s responsibilities for the audit of the annual financial state-ments and of the management report” section of our auditor’s report. We are independent of the Company in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the annual financial statements and on the management report.

Key audit matters in the audit of the annual financial statements Key audit matters are those matters that, in our profes-sional judgment, were of most significance in our audit of the annual financial statements for the financial year from 01/01/2018 to 31/12/2018. These matters were addressed in the context of our audit of the annual financial state-ments as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.

The section below describes what we consider to be the key audit matter:

Recognition and measurement of internally generated intangible fixed assets

Grounds for identification as a key audit matter:

DThe WP2 central settlement platform constitutes the technical foundation for the products and services that Deutsche WertpapierService Bank AG (subsequently referred to as “dwpbank”) offers to its clients under its business model as an infrastructure provider in securities services. To safeguard the future viability of the securities settlement platform, dwpbank continuously invests in further developing the WP2 system and takes steps to expand or materially improve the software.

Section 248 (2) sentence 1 HGB provides for the option to recognise internally generated intangible fixed assets, which dwpbank exercised. A production process in accordance with section 248 (2) sentence 1 HGB exists if custom software is created by a software user using its own material and human resources (internal production). During the period under review, significant development costs were capitalised in connection with the creation of additional functionalities in the WP2 system. dwpbank amortises internally generated intangible fixed assets over a period of four years.

Internally generated intangible fixed assets can only be recognised if the costs give rise to an asset. This presup-poses the existence or probable origination of an individu-ally realisable asset. Pursuant to section 255 (2a) sentence 1 HGB, only those costs arising during development may be capitalised. The criteria for capitalisation include the entity’s intention, ability and resources, and the technical feasibility of completing the intangible fixed asset and using or selling it. The way in which the intangible fixed asset is expected to generate future economic benefits must be documented. It must also be possible to reliably measure the costs attributable during development.

As a consequence, the decision whether to recognise these assets is at the discretion of dwpbank. This discre-tion arises in particular when deciding the extent to which a project can be capitalised and the scope of the costs to be capitalised. The reasons why it is assumed that an intangible fixed asset will be generated internally in the future must be sufficiently documented.

Since the recognition of internally generated intangible fixed assets reduces expenses recognised on the income statement and results in a corresponding improvement in net profit for the year, section 268 (8) HGB stipulates a restriction on distribution.

The recognition and measurement of internally generated intangible assets was a key matter in the context of our audit due to the significance of internally generated software for the presentation of dwpbank’s net assets, financial position and results of operations, and given the discretion inherent in its recognition and measurement.

Audit approach:

Our audit included gaining an understanding of the process used to select all relevant dwpbank projects with respect to recognising internally generated intangible fixed assets.

We applied substantive audit procedures to review, on a test basis, the Bank’s assessment with respect to capital-ising project costs as internally generated intangible fixed assets. For this purpose, we obtained documentation relating to the recognition decisions taken for carefully selected projects, and assessed whether the criteria to capitalise the project costs within the meaning of section 248 (2) HGB were met. We also assessed the capitalised cost elements to judge whether these met the require-ments of section 255 (2) and (2a) HGB (production costs). In addition, we methodically verified the recognised amortisation.

We also used project status reports to assess, on a test basis, whether the corresponding recognition requirements were still met as at the balance sheet date and hence the recoverability of the internally generated intangible fixed assets as at the balance sheet date.

Finally, we assessed the disclosures made in the notes to the financial statements and in the management report with respect to recognising internally generated intangible fixed assets.

Our audit procedures did not give rise to any reservations with respect to the recognition and measurement of internally generated intangible fixed assets.

Independent auditor‘s report

60 61

Annual report 2018

Reference to related disclosures:

For details of the accounting policies applied with respect to intangible fixed assets, please refer to sections I. and II.8. of the notes to the annual financial statements.

Information on intangible fixed assets (section 284 (3) HGB) is contained in section II.9 of the notes.

The mandatory disclosures pursuant to section 285 no. 28 HGB (amounts subject to restrictions on distribution including recognition of internally generated intangible fixed assets) are contained in section V.6 of the notes. Since dwpbank does not conduct research within the meaning of section 255 (2a) sentence 3 HGB, it is not necessary to differentiate between research and development at dwpbank. The disclosures pursuant to section 285 no. 22 HGB on development costs are contained in section V.4 of the notes.

Other information In all other respects, management is responsible for the other information. Other information includes the corporate governance declaration pursuant to section 289f (4) HGB (disclosures on the proportion of women in management positions), as contained in section 3.2 of the management report. In addition, other information also includes the following components prepared for the annual report, copies of which we obtained in order to issue this audit opinion – specifically an overview of key performance indicators, the letter from the Board of Management and the 2018 Coun-try-by-country reporting (disclosure pursuant to section 26a (1) sentence 2 KWG).

Our audit opinions on the annual financial statements and on the management report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information

▪ is materially inconsistent with the annual financial statements, with the management report or our knowledge obtained in the audit, or

▪ otherwise appears to be materially misstated.

FIf, based on the work we have performed, we conclude that there is a material misstatement of this other informa-tion, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and the Supervisory Board for the annual financial statements and the management report Management is responsible for the preparation of the annual financial statements that comply, in all material respects, with the requirements of German commercial law, and that the annual financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Company in compliance with German Legally Required Accounting Principles. In addition, management is responsible for such internal control as it, in accordance with German Legally Required Accounting Principles, has determined necessary to enable the preparation of annual financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the annual financial statements, manage-ment is responsible for assessing the Company’s ability to continue as a going concern. It also has the responsibility for disclosing, as applicable, matters related to going concern. In addition, it is responsible for financial report-ing based on the going concern basis of accounting, provided no actual or legal circumstances conflict therewith.

Furthermore, management is responsible for the prepara-tion of the management report that as a whole provides an appropriate view of the Company’s position and is, in all material respects, consistent with the annual financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, management is responsi-ble for such arrangements and measures (systems) as it has considered necessary to enable the preparation of a management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the management report.

The Supervisory Board is responsible for overseeing the Company’s financial reporting process for the preparation of the annual financial statements and of the manage-ment report.

Auditor’s responsibilities for the audit of the annual financial statements and of the management report Our objectives are to obtain reasonable assurance about whether the annual financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the management report as a whole provides an appropriate view of the Company’s position and, in all material respects, is consistent with the annual financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the annual financial statements and on the management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influ-ence the economic decisions of users taken on the basis of these annual financial statements and this manage-ment report.

We exercise professional judgment and maintain professional scepticism throughout the audit. We also:

▪ iIdentify and assess the risks of material misstatement of the annual financial state- ments and of the management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. 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 controls.

▪ Obtain an understanding of internal control relevant to the audit of the annual financial- statements and of arrangements and measures (systems) relevant to the audit of the manage- ment report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems of the Company.

▪ Evaluate the appropriateness of accounting policies used by management and the reasona- bleness of estimates made by management and related disclosures.

▪ Conclude on the appropriateness of manage- ment’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 the auditor’s report to the related disclosures in the annual financial statements and in the management report or, if such disclosures are inadequate, to modify our respective audit opinions. 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 be able to continue as a going concern.

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Annual report 2018

▪ Evaluate the overall presentation, structure and content of the annual financial statements, including the disclosures, and whether the annual financial statements present the underlying transactions and events in a manner that the annual financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Company in compliance with German Legally Required Accounting Principles.

▪ Evaluate the consistency of the management report with the annual financial statements, its conformity with German law, and the view of the Company’s position it provides.

▪ Perform audit procedures on the forward- looking statements presented by management in the management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assump- tions used by management as a basis for the forward-looking statements, and evaluate the proper derivation of the forward-looking statements from these assumptions. We do not express a separate audit opinion on the forward-looking statements and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the forward-looking statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, includ-ing any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the annual 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.

Other legal and regulatory requirements

Further information pursuant to Article 10 of the EU Audit Regulation We were elected as auditor by the annual general meeting on 23 April 2018. We were engaged by the Supervisory Board on 23 April 2018. We have been the auditor of Deutsche WertpapierService Bank AG without interruption since financial year 2011.

We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).

In addition to auditing the financial statements of the audited company and/or company controlled by it, we have or will provide the following services that are not disclosed in the annual financial statements or in the management report: review of the non-financial report pursuant to section 289b HGB as at 31 December 2018, agreed investigative activities in connection with Deutsche WertpapierService Bank AG’s membership of the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e. V., Berlin (National Association of German Cooperative Banks).

German public auditor responsible for the engagement The German public auditor responsible for the engage-ment is Oliver Heist.

Eschborn/Frankfurt am Main, 6. März 2019

Ernst & Young GmbH

Wirtschaftsprüfungsgesellschaft

Heist Meier

German Public Auditor German Public Auditor

Independent auditor‘s report

64 65

Annual report 2018

Composition of the Supervisory Board and committee work In accordance with the Articles of Association, dwpbank’s Supervisory Board consisted of a total of fifteen members in financial year 2018: ten shareholder representatives and five employee representatives. In accordance with the Articles of Association, new elections were held for the Supervisory Board in 2018, with the shareholder representatives being chosen by the Annual General Meeting and the employee representatives selected by the employees of dwpbank.

The Chairman of the Supervisory Board in financial year 2018 was Thomas Ullrich, member of the Board of Management of DZ BANK AG, Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main. The Deputy Chairman was Dr Klaus Tiedeken, member of the Board of Management of Kreiss-parkasse Köln.

In accordance with the statutory provisions and section 9 of its Rules of Procedure, in 2018, the Supervisory Board was advised and assisted by committees formed from amongst its ranks. Based on a resolution of the Supervisory Board adopted in 2014 in accordance with section 25d (10) of the German Banking Act (Kreditwesengesetz, “KWG”), these comprise a joint Risk and Audit Committee, a joint Nominating and Executive Committee, a Remuneration Control Commit-tee and a Strategy Committee. The Nominating and Executive Committee, Remuneration Control Committee and Risk and Audit Committee each consist of two shareholder representa-tives and one employee representative. The Strategy Committee consists of four shareholder representatives.

At their meetings, the committees performed the tasks allocated to them in accordance with the by-laws of the Supervisory Board. The Nominating and Executive Committee is responsible for tasks including preparing the financial statements; amending and terminating contracts of service with the members of the Managing Board; regularly assessing the structure, size, composition and performance of manage-ment and the Supervisory Board, which must be carried out at least once per year; regularly assessing the knowledge, skills and experience of both the individual managing directors and the members of the Supervisory Board, as well as those of the respective bodies in their entirety, which must be carried out at least once per year; and supervising the preparation and organisation of Supervisory Board meetings. The Nominating and Executive Committee met a total of two times in 2018. The Remuneration Control Committee performed the tasks assigned in accordance with the Remuneration Ordinance for

Report of the Supervisory Board

Institutions (Institutsvergütungsverordnung, “InstitutsVergV”). It met a total of three times in 2018. The Risk and Audit Committee is responsible for the preliminary review of the documents relating to the annual financial statements, the evaluation of the findings of the audit in accordance with section 89 of the German Securities Trading Act (Wertpa-pierhandelsgesetz, “WpHG”) and the audit of securities accounts, as well as issues relating to risk management and the internal control system. The Risk and Audit Committee met a total of four times in 2018. The Strategy Committee is responsible in particular for assisting the Board of Manage-ment on an ad-hoc basis with issues relating to reviewing the business strategy in line with the strategic requirements of the shareholders’ associations and advising on the implemen-tation of such strategy.

Supervising the Bank’s management and advising the Board of Management In 2018, the Supervisory Board again continuously supervised the activities of the Board of Management and advised it on the management of the bank. In accordance with its statutory obligations and the responsibilities set out in the Articles of Association, the Supervisory Board held four meetings during the financial year; in addition, it regularly received detailed written and oral reports from the Board of Management concerning the position and performance of the Bank and took actions to ensure that the Bank’s management was due and proper. The Chairman and Deputy Chairman of the Supervi-sory Board also ensured that they were kept apprised of the Bank’s current development throughout the year under review by way of regular, comprehensive and timely briefings by the Chairman of the Board of Management. The Supervisory Board was directly involved in all decisions of fundamental importance to the Bank at an early stage. In particular, the topics discussed by the Supervisory Board included supervi-sion of the measures in the context of dwpbank’s strategic development, for instance systematically aligning dwpbank’s processes to ensure quality, effectiveness and efficiency, the introduction in 2018 of a new schedule of prices and services, and developing the IT infrastructure to render it fit for the future and cost-efficient. Further issues included the comple-tion of project work in connection with the transfer of data centre services from Deutsche Börse AG to FI-TS, the staggered expansion of the subsidiary dwp Service GmbH, the continued development of the subsidiary dwp Software Kft., Hungary, into a centre of excellence and a software develop-ment firm, advising on the decision to fold IT and operations into Mr Markus Neukirch’s field of responsibility and to

concentrate control functions within Mr Thomas Klanten’s area of responsibility, the discussion of activities in connection with implementing statutory and regulatory requirements (follow-up project relating to MiFID II/MiFIR, implementation of Central Securities Depositories Regulation (CSDR) and the new version of the German Investment Tax Act (Investments-teuergesetz, “InvStG”)), the discussion of the status of measures conducted in response to an audit performed in 2018 in accordance with § 44 KWG and oversight of the periodic revision of the recovery plan in accordance with the German Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz, “SAG”).

Annual financial statements for the year ended 31 December 2018 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, which was elected auditor by the Annual General Meeting, audited dwpbank’s annual financial statements for 2018, as prepared by the Board of Management, comprising the balance sheet as at 31 December 2018, the income state-ment for the 2018 financial year, the notes to the financial statements, including the accounting policies presented in them, and dwpbank’s management report for 2018. In accordance with German legal requirements, the corporate governance declaration pursuant to section 289f (4) of the German Commercial Code (Handesgesetzbuch, “HGB”) (disclosures on the proportion of women in management positions), as contained in section 3.2 of the management report, was not subject to a substantive audit. In its unquali-fied audit opinion on the annual financial statements, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft stated that its audit did not lead to any reservations. In the opinion of Ernst &Young GmbH, the annual financial statements comply with the statutory provisions and give a true and fair view of the net assets, financial position and results of operations of dwpbank in accordance with German principles of proper accounting. Ernst & Young GmbH believes that the management report is consistent with the annual financial statements and, as a whole, provides a suitable view of the Bank’s position and accurately presents the opportunities and risks of future development.

The meeting of the Supervisory Board on 11 April 2019 to review the annual financial statements was attended by the auditors of Ernst & Young GmbH, Wirtschaftsprüfungsge-sellschaft, who signed the audit report. In addition, the auditors attended the meeting of the Risk and Audit Commit-tee on 4 April 2019, at which the preliminary review of the documents relating to the annual financial statements took

place. They reported in detail on the audit of the annual financial statements and answered questions from the members of the Supervisory Board. dwpbank’s annual financial statements, the management report, the proposal by the Board of Management for the appropriation of net retained profits and the auditors’ reports were made available to all members of the Supervisory Board.

The Supervisory Board reviewed the annual financial state- ments and the management report in detail and received the corresponding report by the Risk and Audit Committee. There were no objections. Accordingly, the Supervisory Board approved the annual financial statements of dwpbank for the year ended 31 December 2018, which have therefore been adopted.

In addition, the Supervisory Board reviewed the Board of Management’s proposal for the appropriation of net retained profits for the 2018 financial year. It supports the proposal by the Board of Management, which will therefore be submitted for resolution by the Annual General Meeting as a joint pro- posal by the Supervisory Board and the Board of Management.

Non-financial statement as at 31 December 2018 Furthermore, meetings of the Risk and Audit Committee (4 April 2019) and the Supervisory Board (11 April 2019) discussed the separate non-financial statement of dwpbank as at 31 December 2018, as prepared by the Board of Management. Ernst & Young GmbH Wirtschaftsprüfungsge-sellschaft carried out a limited assurance audit, i.e., restricted to activities similar to a basis review and example sampling. The Board of Management explained the documents in detail at the meetings, and representatives of the auditor reported on the key findings of their audit and answered the additional questions posed by the members of the Supervisory Board. The Supervisory Board’s review did not give rise to any objections.

The Supervisory Board would like to express its thanks and its gratitude to the members of the Board of Management and all employees and employee representatives for their hard work and commitment in 2018.

Frankfurt am Main, 11. April 2019

Deutsche WertpapierService Bank AG

Der Aufsichtsrat

Thomas Ullrich

Report of the Supervisory Board

66 67

Annual report 2018

Members of the Advisory Board (as at 31 December 2018)

▪ Marcus Vitt Chairman of the Advisory Board, Spokesman of the Board of Management, DONNER & REUSCHEL AG

▪ Peter Schirmbeck Deputy Chairman of the Advisory Board, Head of Capital Markets Retail Customers, DZ BANK AG

▪ Dr Detlef Schmidt Deputy Chairman of the Advisory Board, Chairman of the Board of Management, Kreissparkasse Böblingen

▪ Hans-Heinrich Bernhardt Member of the Board of Management, Volksbank Mittelhessen eG

▪ Uwe Didwischus Director for Corporate Ser- vices, NORD/LB

▪ Thomas Fischer Member of the Board of Management, ODDO BHF Aktiengesellschaft

▪ Matthias Frentzen Member of the Board of Management, Dortmunder Volksbank eG

▪ Tilo Hacke Member of the Board of Manage- ment, Deutsche Kreditbank AG

▪ Daniel Keller Member of the Board of Manage- ment, Berliner Volksbank eG

▪ Wolfgang Kirschbaum Chairman of the Board of Management, Sparkasse Minden-Lübbecke

▪ Jörg Lindemann Member of the Board of Manage- gement, Volksbank Darmstadt - Südhessen eG

▪ Wolfgang Reinhart Head of Operations & Services, Bayerische Landesbank

▪ Helmut Schiffer Chairman of the Board of Manage- ment, Sparkasse Essen

▪ Lars Stoy Member of the Board of Management, Postbank – DB Privat- und Firmenkundenbank AG

▪ Jürgen Wagenländer Member of the Board of Management, Sparkasse Mainfranken Würzburg

▪ Dr Jürgen Wiedmann Head of Settlements/ Custody Services, Landesbank Hessen-Thürin- gen Girozentrale

Deutsche WertpapierService Bank AG Wildunger Straße 14 | 60487 Frankfurt am Mainwww.dwpbank.de

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