NATIXIS - 2018 Registration document and annual financial report

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Committee is tasked with supervising the risk model for all of Natixis’ activities by, on one hand, approving validation reports and the related remediation plans and, on the other hand, monitoring consolidated risk model indicators. Natixis’ adjustment policy The Market Risk Department is tasked with defining and implementing the adjustment policy for Capital market activities’ management results. The aim of this policy is twofold: ensure the reliability of the result announced by applying the a principle of prudence; protect Natixis from adverse events that cannot be easily a hedged or that are non-hedgeable. The adjustment policy thus defines the principles for calculating adjustments for market risks to financial instruments measured at fair value. Adjustments for market risks are divided into: adjustments for the cost of position reversals/liquidity positions a in an active market; adjustments for uncertainty relating to observable and a unobservable valuation inputs and model risks in non-active markets; adjustments specific to risks inherent to positions a (discontinuity risks, risks relating to uncertainty regarding size, etc.); adjustments for model risk to hedge model-related a uncertainties (numerical method, calibration, etc.). The shocks applied and methodologies used are updated on a continuous basis. Adjustment amounts are updated on a monthly basis and reported to Natixis Senior Management. Changes in methodology applied to adjustment calculation are submitted for independent validation by the Model Risk & Risk Governance teams. Market risk management 3.2.5.4 quantitative disclosure (Data certified by the Statutory Auditors in accordance with IFRS 7) Change in Natixis VaR The VaR level for Natixis’ trading portfolios averaged €8.9 million. It peaked at €16.4 million on December 24, 2018 and amounted to €13.6 million at December 31, 2018. The following chart shows the VaR trading history between December 29, 2017 and December 31, 2018 for the entire scope.

Independent price verification Independent price verification is carried out by the “Service des Résultats” Department’s IPV (Independent Price Verification) teams which, in line with the division’s charter, control the market inputs used in the valuation process for the bank’s transactions. The review of market inputs may lead to valuation adjustments recognized in economic results and the financial statement. IPV governance is based in particular on: a supervision mechanism overseen by various committees a (Observability and Inputs Committee, Valuation Committee, IPV Committee); a policy and set of procedures, explaining the validation and a escalation system; a set of weekly and monthly reports; a dedicated tools. a Moreover, the Market Risk Department’s teams carry out second-level monthly controls of market inputs. Validation of valuation models Valuation models used by the front office are subject to independent validation by Model Risk Management, a dedicated team within the Model Risk & Risk Governance Department of the Risk Division. This independent validation verifies the evaluation of financial instruments traded and the suitability of the model. In accordance with the validation procedures, these reviews cover the following aspects: the theoretical and mathematical validation of the model, the a analysis of assumptions and their justification in model documentation; algorithm validation and benchmarking; a the model’s stability and convergence of the numerical method a in a stress scenario; the assessment of implied risk factors and calibration, the a analysis of input, and the upstream identification of models; the measurement of model risk and validation of the related a reserves methodology. These models may be subject to backtesting and monitoring in terms of quality and solidity to ensure that the applied risk parameters correspond to the value ranges projected upon their validation. These models are also reviewed periodically, with the periodicity and depth of the review depending on the level of materiality. Conclusions from validation work are presented to the Valuation Models Oversight Committee which brings together model designers and validators on a quarterly basis and contradictory issues are discussed. Conclusions from these Committee Meetings are reporting to the Model Risk Management Committee, chaired by the Chief Risk Officer who is a member of the Senior Management Committee. This

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Natixis Registration Document 2018