BPCE - 2018 Registration document

6 RISK REPORT Market risks

Market risks 6.8

6.8.1

Market risk policy

Risk policies governing market transactions are defined by the Risk Management divisions of institutions with trading activities. These policies are based on a qualitative and forward-looking perspective. For banking book activities, investment policies at Group level are defined and reviewed centrally for group institutions with market risk

activities. The risk management framework related to this activity is defined in accordance with investment policies and is reviewed annually.

6.8.2

Market risk management

ORGANIZATION The Risk, Compliance and Permanent Control division (DRCCP) works in the areas of risk measurement, definition and oversight of limits, and supervision of market risks. It is tasked with the following duties: Risk measurement: establishing the principles of market risk measurement, which are ● then validated by the various appropriate Risk Management Committees; implementing the tools needed to measure risk on a consolidated ● basis; producing risk measurements, including those corresponding to ● operational market limits, or seeing that they are produced as part of the risk management process; determining value adjustment policies or delegating them to the ● Risk Management divisions of the relevant institutions and centralizing the information; performing Level 2 validation of operating results and cash ● valuation methods. Definition and oversight of limits: examining the limit framework and setting limits (global caps and, ● where necessary, operational limits) adopted by the various appropriate Risk Management Committees, as part of the comprehensive risk management process; examining the list of authorized products for the relevant ● institutions and the conditions to be observed, and submitting them for approval to the appropriate Market Risk Committee; examining requests for investments in financial products, or in new ● capital market products or activities, by the relevant banking institutions via the New Market Product Committee; harmonizing processes used to manage trading book allocations ● and medium- to long-term portfolios of the Banque Populaire and Caisse d’Epargne networks (indicators, definition of indicator limits, oversight and control process, and reporting standards); Market risk supervision: consolidating the mapping of Group market risks and contributing ● to the macro-level mapping of Group and institution risks; performing or overseeing daily supervision of positions and risks ● with respect to allocated limits (overall and operational limits) and

established resilience thresholds, organizing the decision-making framework for limit breaches and performing or overseeing permanent supervision of limit breaches and their resolution; preparing the consolidated dashboard for the various ● decision-making bodies. In addition, the DRCCP coordinates the market risk management process through national market risk days, or through theme-based working groups. Activities in 2018 In the changing regulatory environment of 2018, the DRCCP carried out several major organizational projects for the Group: two regulatory stress tests (EBA) and internal stress tests (ICAAP ● and SRB) were conducted; Group governance was established for the calculation of fair value ● levels, with the creation of a Group Fair Value Committee and the deployment of a process for standardizing and improving the accuracy of fair value levels throughout the Group; an investment policy was drafted on institution banking books, ● aimed at defining the scope of operation and establishing investment rules for entities capable of reinvesting their surplus capital; oversight of non-operational property investments was initiated, ● and the private equity/real estate oversight system was improved by defining a stress test for the two asset classes. The supervisory limits applied to both activities will include this stress test measurement going forward; an IT and function-oriented project on “financial risks” was ● launched, aimed at revising the architecture of market risk monitoring systems with the ultimate goal of pooling IT resources with Natixis. Other objectives include: expanding the scope of production for market risk indicators, and - economic indicators for counterparty and CVA risk, reducing production times for banking book market risk - indicators, rolling out an application to provide an overview of financial - product exposures for all Group institutions, including Natixis; the new Level 1 and 2 collateral controls were reviewed and rolled ● out both locally and centrally.

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Registration document 2018