NATIXIS - 2018 Registration document and annual financial report

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

operational risk is intrinsic to all the bank’s business lines and a functions and is managed using a shared data collection tool. The system, which has been rolled out across the business lines and geographic regions, is used to map risks and implement corrective and preventive action plans accordingly; model risk primarily affects CIB activities related to valuation, a risk and capital models; Natixis is committed to strictly observing the laws, regulations a and norms governing its activities, in France and internationally, in the realm of financial security (anti-money laundering, terrorism, corruption and fraud), compliance and client protection; Natixis’ most important asset is its reputation and its a relationship with its clients. Clients' interests are therefore put first and the bank—irrespective of the business activity, entity or geographic region—is dedicated to operating at the highest level of ethical standards, and in line with the best standards of transaction execution and security. Together with Groupe BPCE, Natixis closely monitors its reputation risk using indicators that combine an ex-ante/ex-post approach. Risk Appetite Framework For each identified risk and selected indicator, the risk appetite operating mechanism relies on two successive levels: an overall limit setting the risk envelope allocated to the a business lines; and a warning threshold on the maximum risk that, if exceeded, a would pose a risk to Natixis’ business continuity and/or stability and would have to be reported immediately to the Board of directors, BPCE and the ECB. This operational framework is applied by type of risk (credit and concentration risk, market risk, liquidity and leverage risk, operational risk, solvency risk, etc.) and draws on Natixis’ pre-existing measuring and reporting systems. It is regularly reviewed, consolidated and presented to the Board of Directors’ Risk Committee. The risk appetite framework forms part of Natixis’ main processes, especially regarding: risk identification. every year risks are mapped to give an a overview of the risks to which Natixis is or could be exposed. With this approach it is possible to identify material risks, the indicators of which are included in the risk appetite framework; in the budget process and overall stress tests. a In accordance with regulations concerning systemically important financial institutions, Groupe BPCE has drawn up a recovery and resolution plan (PRR).

It is based on two items: the Risk Appetite Statement (RAS), which sets out, in 1. qualitative and quantitative terms, the risks that the Bank is prepared to take; the Risk Appetite Framework (RAF), which describes the 2. interface between the organization’s key processes and the implementation of the governance that puts the RAS into action. Risk appetite is reviewed annually by Senior Management and approved by the Board of Directors after consultation by the Risk Committee. The Risk Appetite Statement Natixis’ risk appetite principles result from the selection and control of the types of risks that the Bank is prepared to take in pursuit of its business model. They ensure consistency between Natixis’ overarching strategic guidelines and its capacity to manage risks. The business model developed by Natixis is based on its recognized areas of expertise (corporate financing, capital market activities, asset management, insurance, services and specialized financing), in response to the needs of its clients and those of Groupe BPCE. The Bank seeks sustainable and consistent profitability in balance with its consumption of scarce resources (capital, liquidity, balance sheet). It declines any engagement with activities that it does not master. Activities with high risk/profitability ratios are subject to strict selection and oversight. Market risk management in particular has a highly selective investment approach, coupled with limited tolerance for extreme risk, and very close monitoring. Natixis incurs risks intrinsically as part of its Corporate & Investment Banking, Asset & Wealth Management, Insurance and Specialized Financial Services (SFS) activities: credit risk generated by Corporate & Investment Banking as a well as SFS lending activities is managed under specific risk policies adapted by business and subsidiary, concentration limits defined by counterparty, sector and country, and through extensive portfolio monitoring. Natixis ensures the selective management of issuance commitments through independent analyses and various Credit Committees; leverage and liquidity risk are included in Groupe BPCE's risk a framework. Since BPCE provides a liquidity and capital adequacy guarantee, Natixis applies BPCE’s risk policies to its own organization. These two risks give rise to specific objectives which contribute to the management of scarce resources using a dedicated framework and management objectives*. Natixis oversees the strategy to diversify its sources of financing as well as those of Groupe BPCE, and manages its solvency ratio to cope with stress situations; market risk is incurred from Natixis’ market activities within a the CIB, which aim to meet the needs of its clients and exclude all forms of proprietary trading. This risk is managed according to a body of risk policies and specific qualitative and quantitative indicators;

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Natixis Registration Document 2018