AFD_REGISTRATION_DOCUMENT_2017

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RISK MANAGEMENT

Risk management

4.2.4.4 Risk on equities and other financial instruments

a) Permanent control system AFD Group’s permanent control is cross-functional and carried out by (i) the Permanent Control unit of the Permanent Control and Compliance Department (CPC), comprising employees who are responsible for defining, leading and supervising the system and, (ii) Group managers responsible for risk mitigation in their part of the organisation and who are the appointed contacts in this respect for the CPC, and (iii) any employees, whether at headquarters or in branches, who may be required to play a role in identifying and assessing risks, carrying out first and second level checks and detecting and declaring and/or handling an incident. AFD’s permanent control is exhaustive in scope, because its aim is to ensure that all risks generated by the Group’s activities, whatever they may be, are indeed subject to an appropriate control system. Lastly, with regards to the specific disbursements control system, the role of the Disbursement Control division of the CPC department is to carry out second level checks following disbursements for AFD’s financing projects. It is a specialist unit that, in accordance with Articleb14bof the Decree of 3 November 2014, is independent of operational structures and is responsible for controlling disbursement requests. b) Anti-money laundering and combating terrorist financing system (AML/CFT) The Compliance function of the Permanent Control and Compliance Department (CPC) on behalf of AFD Group, which is independent of operationals, is tasked with controlling compliance in all sectors, operations, geographic areas and regulatory contexts of AFD Group. Its ultimate aim is to ensure that non-compliance risks and risks to the Group’s reputation are monitored and managed. The Compliance function’s field of expertise enables it to (i) decide on AFD Group’s financial security policy, (ii) ensure that the financial institution follows the provisions on combating money laundering and terrorist financing, those on the prevention of corruption and on conducting banking and financial activities, and those ensuring the protection of clients’ personal data. c) Periodic control system Given the rules governing the independence of the services that it provides, the General Inspection department (IGE) reports to AFD’s Chief Executive Officer. It is in charge of the periodic control of transaction compliance, the actual risk level incurred, the respect of procedures, and the efficiency and suitability of the permanent control systems set up by AFD. It serves AFD’s internal audit function and has jurisdiction over all of the company’s activities, including outsourced activities. The Group’s risk mitigation is governed through two main bodies: the Board of Directors, via the Group Risk Committee and the Audit Committee, and the Internal Control Committee: P The Internal Control Committee The Internal Control Committee is the body through which the head of Periodic Control and the head of Permanent Control and Compliance of the Group report on the fulfilment of their roles to the executive officers, as stipulated in Articleb10bof the Decree of 3 November 2014.

The methods for valuing and recording equity investments held by the Group are presented in Paragraphb6.2 of the financial statements in the Notes: “Financial assets at fair value through profit and loss” and “Available-for-sale financial assets”. The accounting standards for equity-accounted equity investments are outlined in Noteb6.2.3.1 ‘‘Consolidation scope and methods’’. The summary table of equity investment exposure is provided in Paragraphb4.2.4.1.1.2. The amount of capital gains (losses) realised on disposals and liquidations during the period under review is presented in Noteb14bto the consolidated financial statements. Unrealised capital gains or losses are booked as equity under the heading “Unrealised or deferred capital gains/losses” in the financial statements. Capital requirements for this category of risk equalled €175M based on a risk-weighted amount of €2,187M. 4.2.4.5 Interest rate risk in the banking portfolio The paragraph on “Interest rate risk” Chapterb6.2.6.3 describes this type of risk in detail. 4.2.4.6 Information on encumbered and unencumbered assets An asset is considered to be “encumbered”, or may be used contractually for the purpose of guaranteeing, acting as collateral for or enhancing a transaction from which it is inseparable. On the other hand, an “unencumbered” asset is one free of any restrictions of a legal, regulatory, contractual or any other nature, and free from the possibility of being liquidated, sold, transferred or assigned. AFD does not record any assets as encumbered apart from securities sold under repurchase agreements to the Banque de France for a nominal amount of €64.5M. 4.3 RISK MANAGEMENT 4.3.1 Internal control and risk monitoring AFD’s internal control system is intended to provide General Management with reasonable assurance that the following three targets will be met: (i) completion and optimisation of transactions, (ii) reliability of financial information, and (iii) compliance with laws and regulations. It includes the four targets set in the decree of 3 November 2014, namely, (i) the quality and reliability of accounting and financial information, (ii) the compliance of transactions, organisation, and internal procedures with legal and regulatory provisions, (iii) the quality of information systems, and (iv) compliance with decisions made by General Management. At AFD, internal control is the purview of the Permanent Control and Compliance Department (CPC) and the General Inspection department (IGE) for periodic control.

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REGISTRATION DOCUMENT 2017

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