Governance and risk management system

Changes to our business model are increasing our exposure to some types of risks, particularly risks related to asset management and international business development. Groupe BPCE does not conduct business unless it has the associated risks strictly under control, nor does it exercise proprietary trading activities. Activities with high risk-reward profiles are strictly limited. In all activities, entities and regions of operation, the Group undertakes to meet the highest standards in ethics, conduct, best execution and transaction security. Groupe BPCE’s risk appetite is defined as the level of risk it is willing to accept with the goal of increasing its profitability while maintaining solvency. This risk appetite must be aligned with the institution’s operating environment, strategy and business model, while incorporating customer interests. In determining its risk appetite, Groupe BPCE aims to steer clear of any major pockets of concentration and to optimize capitalallocation. Risk appetite framework Groupe BPCE’s general risk appetite frameworkwas validated by the BPCE Supervisory Board, as was its 2017 annual review. It is consistentwith the “TEC 2020” strategicplan, as applied to the entire risk governance structure, including the Risk Management Umbrella Committee. More specifically, this general framework draws in turn on a framework document that gives both a qualitative and quantitative descriptionof risks the Group is willing to take. It also describes the governance and operational principles currently in force at Groupe BPCE. The operationalrisk appetiteframeworkis based on indicatorsbroken down by major risk category. There are six major risk categories: solvency risk, credit risk (credit and counterpartyrisk, concentration risk), non-financial risks, financial risks (market risks and securitization risk), liquidity risk and interest rate risk. These six categories are subject to indicators at the highest level of Group governance. Groupe BPCE enjoys high liquidity and solvency levels: in terms of solvency, the Group is able to absorb, if need be, the ● occurrence of arisk at entity or Group level; in terms of liquidity, the Group has a significantreserve consisting ● of cash and securities enabling it meet regulatory requirements, satisfy stress test exercisesand access central bank unconventional financing mechanisms. It also has high-quality assets eligible for market funding mechanisms and those offered by the ECB. The Group ensures the robustness of this system by conducting comprehensivestress tests on a regular basis, designed to verify the Group’s resilience inthe event of amajor crisis. The implementation of the risk appetite framework is centered on four key components:(i) the definition of group-wide standards, (ii) the existence of a set of limits in line with those defined by regulations, (iii) the breakdown of expertise and responsibilities betweenthe entities and the central institutionand (iv) the operation of the governanceprocesswithin the Group and the differententities, enabling the efficient and resilient application of the risk appetite framework.

The Group’s risk appetite framework is regularly updated, notably during the annual review, and is centered on a series of successive limits associated with separate respective authorization levels, i.e. : a limit which, if breached, calls for BPCE Management Board ● members to decide either to require the breach to be corrected or to allow the transaction to go ahead on an exceptional basis; a resilience limit: breaching this limit exposes the Group to ● potential business continuity and/or stability risk. Any such breach must be reportedto the BPCE SupervisoryBoard and addressedby a specific actionplan validated by the Board; an extreme limit in conjunction with the Group’s resolution and ● recovery plan mechanism,which, if breached, could jeopardize the Group’s very survival. This extreme limit concernscertain indicators adopted inrespect of the Group’s risk appetite. A quarterly dashboard is prepared by the Group’s Risk, Compliance and Permanent Control division, for the purpose of regularly and extensively monitoring all risk indicators and reporting to the supervisory body or/and any committeethereof. The risk appetite framework has been adapted by the entities for consistent group-wide implementation. STRESS TEST SYSTEM In 2011, Groupe BPCE developed a stress test system in response to the EBA’s request as well as for the purpose of the Group’s strategic analysis. Group stress tests have gradually been expanded in terms of portfolios covered and types of risk. The Group’s stress test system was initially based on a comprehensiveapproach covering credit and counterpartyrisk, securitizationand market risks. It was subsequently expandedin 2014 to include net interest income: credit risk: change incost of risk and risk-weighted assets; ● securitization portfolios and counterparty risk: change in ● impairment and risk-weighted assets; market risks: market shocks, change in securities portfolios and ● risk-weighted assets. This approach covers all Group entities, factoring in their specific features.An internal stress test was also implementedon Pillar I risks in 2015. In addition to the risk supervisionconductedboth individuallyand by type of risk, Groupe BPCE’s Risk, Complianceand Permanent Control division (DRCCP) also consolidatesthe Group’s risks. It calculatesand consolidates credit risk-weighted assets at Group level, produces regulatory reports (particularly COREP statements on loans, large exposures, etc.) and internal dashboards. In particular, it produces a consolidated risk dashboard, which is used to monitor the risk appetite defined by the Group as well as for comprehensive monitoringof risks based on an analysis of the Group’s risk profile in each area (mapping of risk-weighted assets, credit risks and counterpartyrisks – by customer segment –, market risks, structural ALM risks,operationalrisk and risks related to insurance activities). CROSS-BUSINESS RISK ANALYSIS Organization


Registration document 2017

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