BPCE - 2019 Universal Registration Document

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FINANCIAL REPORT

IFRS CONSOLIDATED FINANCIAL STATEMENTS OF BPCE SA GROUP AS AT DECEMBER 31, 2019

Uncertainty arising from the benchmark rate reform and the organization set up at BPCE SA group to address this matter are described in Note 2.3. The degree of uncertainty regarding derivatives or hedged items indexed to the EURIBOR or EONIA rates, which account for most of Groupe BPCE’s hedging activities, is less pronounced than the uncertainty surrounding those indexed to the LIBOR. The other standards, amendments and interpretations adopted by the European Union did not have a material impact on the Group’s financial statements. IFRS 17 IFRS 17 “Insurance Contracts” was published by the IASB on May 18, 2017 and will replace IFRS 4 “Insurance Contracts”. Initially applicable on January 1, 2021, with a comparison at January 1, 2020, this standard is only expected to come into force from January 1, 2022. At its meeting on November 14, 2018, the IASB decided to defer its application by a year as clarifications still need to be given regarding key aspects of the standard. It also decided to defer the expiry of insurance companies’ temporary exemption from IFRS 9 to January 1, 2022, to align it with the application of IFRS 17. A draft amendment, “Exposure Draft ED/2019/4 Amendments to IFRS 17”, was published on June 26, 2019. IFRS 17 establishes the principles of recognition, measurement, presentation and disclosure for the insurance contracts and investment contracts with discretionary profit sharing provisions that fall within its scope. Currently measured at historic cost, contract obligations shall be recognized at present value, in accordance with IFRS 17. To that end, insurance contracts will be measured based on their future cash flows, including a risk margin in order to factor in the uncertainty relating to these cash flows. IFRS 17 also introduces the concept of contractual service margin. This represents the insurer’s unearned profit and will be released over time as the services are rendered to the policyholder. The standard demands a more detailed level of granularity in calculations as it requires estimates by group of contracts. These accounting changes could modify the profile of insurance income (in particular for life insurance) and also introduce greater volatility in income. Despite the many uncertainties that still remain with respect to the standard (application date, ongoing activities to adjust certain positions, the Exposure Draft published on June 26, 2019), BPCE SA group’s insurance entities have set up project teams to address the changes brought about by the standard and are continuing their preparation work. This work includes decisions and documentation of the choices made pertaining to the standard, modeling, the adaptation of systems and organizations, the production of financial statements and the switchover strategy, financial disclosures and change management. 2.3 Preparation of the financial statements requires Management to make estimates and assumptions in certain areas with regard to uncertain future events. These estimates are based on the judgment of the individuals preparing these financial statements and the information available at the balance sheet date. Actual future results may differ from these estimates. USE OF ESTIMATES AND JUDGMENTS

With respect to the financial statements for the period ended December 31, 2019 in particular, accounting estimates requiring assumptions were mainly used for the following measurements: the fair value of financial instruments determined on the basis • of valuation models (Note 10); the amount of expected credit losses on financial instruments • as well as on loan and guarantee commitments (Note 7.1); provisions recorded under liabilities in the balance sheet and • more specifically the provision for regulated home savings products (Note 5.13) and provisions for insurance policies (Note 9); calculations related to the cost of pensions and future • employee benefits (Note 8.2); deferred tax assets and liabilities (Note 11); • goodwill impairment testing (Note 3.5). • Judgment must also be exercised to assess the business model and whether a financial instrument can be categorized as SPPI. The procedures are described in the relevant paragraphs (Note 2.5.1). The adoption of IFRS 16 led BPCE SA group to extend its use of judgment to estimate the term of leases in order to recognize the right of use of lease assets and to record lease liabilities (Note 12.2.2). On June 23, 2016, the UK decided to leave the European Union (Brexit) following a referendum. After the triggering of Article 50 of the treaty on European Union on March 29, 2017, the United Kingdom and the 27 other member countries of the European Union gave themselves two years to prepare for the country’s effective withdrawal. The Brexit date was postponed three times and finally set at January 31, 2020. The UK Parliament recently approved the Brexit deal negotiated with Brussels, which was ratified by the European Parliament on January 29, 2020. The transition period will run through December 31, 2020, during which future trade agreements for goods and services will be negotiated while current European rules continue to apply. The political and economic consequences of Brexit are now dependent on the agreements that will be concluded in 2020, bearing in mind that the European MPs already consider the timeline excessively tight. Against this backdrop, BPCE SA group has prepared for the various possible Brexit scenarios, and will keep a close eye on the outcome of the negotiations, in order to incorporate them, where necessary, in the assumptions and estimates used in preparing the consolidated financial statements. The risk of European regulations not recognizing UK clearing houses is no longer a short-term risk. BREXIT: EXIT DATE SET AT JANUARY 31, 2020 AND BEGINNING OF TRANSITION PERIOD UNCERTAINTIES RELATED TO THE APPLICATION OF CERTAIN PROVISIONS OF THE BMR European Regulation (EU) 2016/1011 of June 8, 2016 on the indices used as benchmarks (the Benchmark Regulation or BMR) introduces a common framework aimed at guaranteeing the accuracy and integrity of the indices used as benchmarks for financial instruments and contracts, or to measure the performance of investment funds within the European Union.

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

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