NATIXIS -2020 Universal Registration Document

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

The design, modification and ongoing management of the model are performed by the model designers on behalf of the model owner. Model Risk Management, an independent entity, is called upon for all new models as well as for all modifications or improvements to existing models. On an annual basis, the team in charge of designing internal or valuation models monitors the models’ performance, notably through an analysis of backtesting and usage tests. The third line of defense is the General Inspection Department, which annually reviews internal models and compliance with the risk model management framework and the correct application by Model Risk Management of its own policies and procedures. The results of the model validationprocess performedat Natixis are presented to the Model Oversight Committees for confirmation, then submitted to the Model Risk Management Committee for approval before being sent, in the case of internal models, to the Standards and Methods Committee of the Groupe BPCE Risk, Compliance and Permanent Control division for final validation and possible submission to the regulator. This Model Risk ManagementCommittee 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. The Model Oversight Committees are chaired by the Head of the Model Risk & Risk Governance Department. The Model Risk Management Committee is chaired by the Chief Executive Officer of Natixis, directly or indirectly through a specific delegation of authority. Natixis’ adjustment policy The risk division is tasked with defining and implementing the adjustment policy for Capital Market activities’ managemenrtesults. The aim of this policy is twofold: ensure the reliability of the result announced by applying the V principle of prudence; protect Natixis from adverse events that cannot be easily hedged V 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/liquiditypositions; V adjustments for input uncertainty; V adjustments for model uncertainty. V The shocks applied and methodologies used are updated on a continuous basis. Adjustment amounts are updated on a monthly basis. Changes in methodology applied to adjustment calculations in respect of market and model-related uncertainties are submitted for independent validation by the Model Risk Management teams.

Validation of models In accordancewith regulatory requirements,Natixis has established internal model validation policies and procedures for evaluating market risk and valuation models. This independent model validation policy is part of its wider risk model management framework. As part of the Risk Governance Department which reports to the chief risk officer, Model Risk Management is responsible for the governance and standards applicable to a model’s life cycle. The various stages of a model’s life cycle – design, IT development, validation, and use – are clearly presented and the roles and responsibilities of each participant specified and detailed. Internal market risk models are validated by the Natixis Risk division’s Risk Model Validation team, under the authorizationof the Groupe BPCE MRM Committee. Valuation models are validated by the Valuation Model Validation team, under the authorizationof the Groupe BPCE MRM Committee. The Natixis Validation teams use a six-fold validation process: data and parameters applied by the model: analysis of data V quality and representativeness, integrity of controls, error reports, comprehensiveness of data, etc.; methodology: analysis of model’s underlying theory, analysis of V estimates, sizing methods, risk indicators, aggregation rules, model benchmarking, analysis of precision and convergence; usage and robustness test: the validation team ensures that the V internal models are used by qualified staff, that usage procedures are documented and up to date, and conducts independent ex-post controls and stress tests; IT development: counter-implementation, code analysis, tests; V compliance with regulations: gap analysis; V documentation: analysis of quality and comprehensiveness of V methodological documentation received. Specifically, the following aspects are assessed in respect of valuation models: the theoretical and mathematical validation of the model, the V analysis of assumptions and their justification in model documentation; algorithm validation and benchmarking; V the model’s stability and convergenceof the numerical method in V a stress scenario; the assessment of implied risk factors and calibration, the V analysis of input, and the upstream identification of models; the measurement of model risk and validation of the related V reserves methodology.

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020