NATIXIS // 2021 Universal Registration Document

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

the analysis of the model’s stability and convergence of the V numerical method in a stress scenario; the assessmentof implied risk factors and calibration, the analysis V of input, and the upstream identification of models; the measurement of model risk and validation of the related V reserves methodology. The design, modificationand ongoingmanagementof the model are performed by the model designers on behalf of the model owner. Model Risk Management,an independententity, is called upon for all new models as well as for all modifications or improvements to existingmodels. 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 InspectionDepartment,which annually reviews internal models and compliancewith the risk model management framework and the correct application by Model Risk Management of its own policies and procedures. The results of the model validation process performed at 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 Management Committee is tasked with supervising the risk model for all of Natixis’ activities by, on one hand, approving validation reports and the related remediationplans 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 adjustmentpolicy for Capital Market activities’ management results. 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 forthe cost of position reversals/liquidity positions; 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 adjustmentcalculations in respect of market and model-related uncertainties are submitted for independent validation by the Model Risk Management teams.

Independent price verification Independent price verification is carried out by Market Risk’s IPV (Independent Price Verification) teams which, in line with the division’s policy, 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 supervisory system built around Committees (Fair Value Level V Committee, Valuation Committee, LPI Committee); a policy and set of procedures, explaining the validation and V escalation system; a set of weekly and monthly reports; V dedicated tools. V Validation of models In accordance with regulatory requirements, Natixis has established internal model validation policies and procedures for evaluating market risk and valuationmodels. This independentmodel validation policy is part of its wider risk model management framework. As part of the Model Risk & 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 authorization of the Groupe BPCE MRM Committee. The Natixis Validation teams use a six-fold validation process: data and parametersapplied by the model: analysis of data quality V and representativeness, integrity of controls, error reports, comprehensiveness of data, etc.; methodology: analysis of the model’s underlying theory, analysis V of 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 documentedand up to date, and conducts independentex-post controls and stress tests; IT development: counter-implementation, code analysis, tests; V compliance with regulations: gap analysis; V documentation: analysis of the quality and comprehensiveness V of the methodological documentation received. Specifically, the following aspects are assessed in respect of valuation models: the theoretical and mathematical validation of the model, V the analysis of assumptions and their justification in model documentation; algorithm validation and benchmarking; V

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2021