NATIXIS_PILLAR_III_2017_EN

8 MARKET RISK

Framework for managing market risk

Framework for managing market risk 8.1

TARGETS AND POLICY 8.1.1

The Risk division’s main responsibilities are: the definition of all applicable risk measurement methods and a risk indicators; the examination of annual limit reviews (including risk appetite) a and ad hoc requests (VaR, stress tests, operational indicators, loss alerts); providing alerts for areas at risk relating to the businesses or to a Natixis Senior Management; the daily analysis and measurement of risks, daily reporting, a and notifying front office and management of any breaches; approving and managing the pricing models (pricers) and a related reserves used by front office management tools; defining and validating models and methodologies relating to a the institution’s internal model, which is primarily used to calculate regulatory capital requirements; introducing and managing changes in standards and a procedures common to all entities (subsidiaries and branches) carrying market risks.

The Risk Management function places great importance on the formal definition of all risk policies governing market transactions based on both a qualitative and forward-looking analysis. This approach is mainly based on the strategic review of global risk envelopes, business targets and market trends and relies on a proactive early warning system for the most sensitive areas at risk. These market risk policies focus on a set of methodological principles in terms of risk monitoring and supervision and provide a matrix approach to businesses by asset class and management strategy.

MARKET RISK CONTROL 8.1.2

Market risk control is based on a limit authorization structure that is overseen by the Global Risk Committee and in which the Market Risk Committee, chaired by the Chief Executive Officer or the delegated representative, plays an essential role.

Independent valuation control 8.2

The valuation of Natixis’ various market products forms part of the independent control system made up of dedicated procedures. In accordance with the provisions of IAS 39, financial instruments are recognized at their fair value. (See Chapter 5 of the Natixis 2017 registration document for further information regarding fair value accounting methodologies) . Fair value determination is subject to a control procedure aimed at verifying that the valuation of financial instruments is determined and validated by an independent function in terms of prices and/or valuation models.

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, Market Risk Committee); a policy and set of procedures, explaining the validation and a escalation system; comprehensive reporting; a the mapping and internal classification of data; a dedicated tools. a Moreover, the Market Risk Department’s teams carry out level two monthly controls of market inputs.

INDEPENDENT PRICE VERIFICATION 8.2.1

Independent price verification is carried out by the "Service des Résultats" department’s IPV (Independent Price Verification)

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NATIXIS Risk report Pillar III 2017