BPCE - 2018 Registration document

6 RISK REPORT

Non-compliance, security and operational risks

Additional Supervision of Financial Conglomerates

In addition to the MiFID 2, IDD and PRIIPs projects, manufacturer/distributor working groups were held throughout the year to address the five Pillars of the Insurance Distribution Directive: Pillar I “ Product governance and distribution rules ”: this ● Pillar ensures consistency between the level of risk, the target market and the distribution strategy of a product; Pillar II “ Customer information and prevention of conflicts of ● interest ”: the aim of this Pillar is to improve customer information on Insurance and investment products; Pillar III “ Advice and long-term customer service ”: this ● Pillar addresses the duty to advise and the updating of advice over the customer’s life and over the term of the business relationship; Pillar IV “ Price transparency ”: the aim of this Pillar is full ● transparency for the customer regarding the prices charged by Insurance distributors and rebates on Insurance products (life and non-life); Pillar V “ Continuous training ”: the purpose of this Pillar is to ensure ● the continuous training of sales teams, taking into account both regulatory developments and best practices. A training plan was defined in conjunction with the manufacturers, so as to meet the regulatory deadline of February 23, 2019. BPCE is taking part in financial center initiatives in progress on “costs and expenses” and on product governance. Insurance risk is the risk of any difference between expected and actual claims. Depending on the Insurance product in question, the risk varies according to macroeconomic changes, changes in customer behavior, changes in public healthcare policy, pandemics, accidents and natural disasters (such as earthquakes, industrial accidents or acts of terrorism or war). The Credit Insurance activity is also exposed to credit risk. Insurance risk management requires solid comprehension of technical Insurance risks in order to meet commitments to insurers and policyholders. Particular attention must also be paid to the financial risks borne through assets held to back commitments. In addition to protecting the balance sheet and income statement of Insurance companies, the aim is to guarantee the solvency and liquidity of the Insurance companies. To this end, Groupe BPCE’s companies have set up effective risk measurement, reporting and supervisory procedures. The extensive preparations that went into these procedures have allowed the Group to meet the new regulatory requirements that came into effect on January 1, 2016 with the application of Solvency II (Pillar I Quantitative Solvency Requirements, Pillar II Governance & ORSA, Pillar III Prudential reporting and public information). The Group created an Insurance Risk function in 2011. This function meets the requirements set out in the Financial Conglomerates Directive (FICOD) 2002/87/EC and its transposition in France by the Ministerial Order of November 3, 2014 governing the additional supervision of financial conglomerates, through the cross-divisional Group Insurance risk monitoring system. Technical Insurance risks 6.11.7

The purpose of “additional supervision of financial conglomerates” is to formally combine the initiatives directly undertaken in respect of financial conglomerates as well as inter-sector initiatives. Initial meetings addressed the function topics and needs of the main participants: financial conglomerate liquidity risk; ● changes in regulatory deliverables; ● streamlined management of PRPs throughout the Group; ● design of an analysis chart specifically tailored to financial ● conglomerate oversight. Asset Management risks and compliance The Asset Management risk and compliance system is in the process of being rolled out. The mission statement, validated this year by the CRCG, includes the creation of an asset management risk and compliance oversight committee (CSRC GA) that will meet quarterly. The DRCCP supervises risks arising from the interdependence of the asset management business and other banking and Insurance divisions, through an analysis of potentially cumulative risks. NATIXIS ASSURANCES Natixis Assurances is the Insurance division of the Natixis group and is divided into two businesses: the personal Insurance business, focused on developing portfolios ● of life insurance and endowment policies for investment and retirement purposes, as well as provident Insurance portfolios; the non-life insurance business, focused on developing portfolios ● for auto and multi-risk home Insurance, personal accident Insurance, legal protection, healthcare and property and casualty Insurance. Given the predominance of the Investment Solutions activity, the main risks to which Natixis Assurances is exposed are financial. The company is also exposed to underwriting risks (life and non-life), as well as counterparty risk. Market risk Market risk is in large part borne by the subsidiary BPCE Vie on the financial assets that underpin its capital guarantee and guaranteed return products (euro-denominated policies: € 53.8 billion on the main fund balance sheet). The company is exposed to asset impairment risk (fall in the equity or real estate market, widening spreads, interest rate hikes) and to the risk of lower interest rates which would generate insufficient income to meet its capital and return guarantees. To deal with this risk, BPCE Vie has only sold policies with a minimum guaranteed return in recent years: more than 94% of the policies have a zero minimum guaranteed return. The minimum guaranteed return averages 0.15%.

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Registration document 2018