BPCE_REGISTRATION_DOCUMENT_2017

3 RISK REPORT Summary of risks

3.2.2

Regulatory changes

Prudentialrequirementsprovide for major regulatorychanges both at international and European level, on which the Group is already focusing attention. Internationally,in the second half of 2017, the Basel Committee on Banking Supervision (BCBS) publishedthe “Finalizationof Basel III” on the revision of credit risk measurement methods, CVA risk, and operational risk, thereby finalizing the Basel III cycle on capital requirements.The package includes a floor for risk-weightedassets, including on the output of internal models, set at 72.5% of RWAs calculated using the Basel III standardized approach. Moreover, the Basel package also includes a gradual introduction of this floor between 2022and 2027. This point will be confirmed by theEuropean legislator for enactment purposes. A period of implementation is beginning for banks and a period of monitoring for the regulatory authorities, and the European Commission has stated that it will launch a consultationand an impact analysisbefore the transposition phase. The Basel Committee has also confirmed the schedule for FRTB recalibration(consultationset for Q1 2018) and has pushed back the implementation date to 2022, in line with transposition work in Europe. The Standardized Approach for Measuring Counterparty Credit Risk (SA-CCR), as applied to derivatives,and the treatment of derivativesfor the leverageratio and for the Net Stable FundingRatio (NSFR) are being re-examined.No clear schedulehas been established for the time being, but this work will probably be completed before the Basel III phase-in period. Finally, on December 7, 2017, the Basel Committee published a discussion paper on sovereign risk, while stressing that the working group had failed to reach a consensus.As we understandit, the matterwill not be taken up again at least in the short term. From an implementationstandpointin Europe, the first half of 2017 saw the finalization of the legislative process relating to the securitizationregulation and the review of the section of regulation 2013/575 (CRR) on securitization exposures (transposition of 2015 text “BCBS 303”). The upcoming effective date is January 2019, and implementationwork isalready under way. Work relating to the RRM (risk reduction measures) package was launched on November 23, 2016 when the European Commission’s proposal was remitted to the Council of Europe and the European Parliament. This work involves several regulation and directives

counterparty risk: incorporation of the revised counterparty risk ● framework in the standardized approach (BCBS 279 – 2014) modifying the measurement of derivative exposures; market risks: implementation of the fundamental review of the ● trading book (BCBS 352 – 2016), which addresses both the definition of the trading/banking book boundary and the measurement of market risk; leverage ratio:introductionof a binding leverage ratio requirement; ● net stable fundingratio: recalibrationand introductionof a binding ● ratio; interest rate risk in the banking book: transpositionof the revised ● Basel framework(BCBS 368 –2016); MREL (Minimum Requirement for own funds and Eligible ● Liabilities): methodologyupdate; TLAC: introductionof a TLAC requirementapplicableto G-SIBs and ● setting a minimum level of own funds and eligible liabilities (bail-in) capable of covering losses in the event of resolution (transposition of the2015 FSB text). By late June 2017, a compromise had already been reached on two acceleratedprocedures:the review of the insolvencyhierarchy in the bank resolution scheme, and incorporationof the IFRS 9 accounting reform in the capital ratio. 2017 also saw increasingly heated discussions on the proportionalityprinciple and the powers held by financial sector supervisors (ECB) and technical authorities (EBA, ESMA, etc.). The EuropeanCouncil and Parliamentmade considerableheadway on these matters in 2017. Under the Estonian Presidency, three new consolidatedregulatory packages made the rounds, with agreements reached on several key issues. In the first half of 2018, the Bulgarian Presidency is expected to wind up the Council’s work on bank resolution issues in particular. Parliament’s schedule is also much clearer, with the publication of draft reports by G. Hökmark and P. Simon. Trilogue negotiations are scheduled for second-half 2018 on regulatory proposals before the European Commission, Council and Parliament. The resulting final regulations could therefore be publishedin January 2019, meaningthe newmeasureswould become effectivein January2021 at theearliest. The next step will be to develop implementingtexts for supervisors and technical authorities. This in turn will set the stage for implementation by banking and financial institutions, from both a technical standpoint in order to comply with the new regulatory requirements,and from a strategicstandpointto adapt their products and services accordingly.

(CRR II/CRD V/BRRD II/SRMRII) and addresses: capital: updateto definitionand issuecategories; ●

credit risk: reviews of the accounting treatment of investments in ● funds (transposition of 2013 text “BCBS 266”), treatment of exposureswith clearing houses (BCBS 282 – 2014) and supervision of major risks (BCBS 283 – 2014);

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Registration document 2017