NATIXIS_REGISTRATION_DOCUMENT_2017

3 RISKS AND CAPITAL ADEQUACY Summary of annual risks

The financial soundness and behavior of other financial institutions and market participants could have an adverse impact on Natixis Natixis’ ability to carry out its operations could be affected by the financialsoundnessof other financialinstitutionsand market participants. Financial institutions are closely interconnected mainly as a result of their trading, clearing, counterparty and financingoperations.The defaultof a sector participant,or mere rumors or questions surrounding one or more financial institutionsor the finance industryas a whole, have, in the past, led to a widespreadcontractionin liquidity in the market and, in the future,could lead to additionallossesor defaults. Natixis is exposedto numerousfinancialcounterparties,such as investmentservice providers,commercialor investmentbanks, mutual funds and hedge funds, as well as other institutional clients with which it conducts transactions in the ordinary course of business. Natixis is therefore exposed to a risk of insolvencyshould one of its counterpartiesor customersfail to meet their commitments.This risk would be compoundedif the assets held as collateral by Natixis were unable to be sold or if their price was insufficient to cover all of Natixis’ exposure to loans or derivatives in default. In addition, fraud or misappropriationcommittedby financialsector participantsmay have a highly detrimentalimpact on financial institutionsdue to interconnectednature of institutions operating in the financial markets.The potentiallosses arising from the above-mentioned risks could have a significantbearingon Natixis’results. An extended market decline may reduce the liquidity of assets and make it more difficult to sell them, potentially giving rise to significant losses In some of Natixis’ businesses,a prolonged fall in asset prices could threaten business levels or reduce liquidity in the market concerned. This situation would expose Natixis to significant losses were it unable to rapidly close out its potentially loss-making positions. This is particularly true in relation to intrinsically illiquid assets. Certain assets, such as derivatives traded betweenbanks, that are not tradedon a stock exchange, regulated market, or offset through a clearing house are generally valued using models rather than on the basis of the marketprice. Given the difficultyin monitoringchangesin prices of these assets,Natixiscould suffer unforeseenlosses. In addition, Natixis originates or acquires certain assets with a view to their subsequentresale or distributionthroughchannels such as syndicationor securitization.A reduction in the liquidity of the markets for such assets or the syndication or securitizationmarkets more generally, or the inability of Natixis to sell or reduce its positions in such assets for any other reason,may compel Natixis to bear more credit risk and market risk associated with such assets for a longer period than it initially anticipated. The absence of liquidity in the secondary markets for such assets may require Natixis to reduce its origination activities, which would impact revenues and could affect its relations with customers, which in turn could adverselyaffect its resultsof operationsand financialcondition.

Natixis is exposed to emerging risks, including risks relating to cyber security Natixis is confrontedwith new types of risk that have emerged in recent years, in particular cyber risk, and may become exposed to other emergent risks in the future. Cyber risk is causedby a maliciousand/or fraudulentact, perpetrateddigitally in an effort to manipulate data (personal, banking/insurance, technical or strategic data), processes and users, with the aim of causing material losses to companies, their employees, partnersand clients. Cyber risk has becomea top priority in the field of operationalrisks. A company’sdata assets are exposed to new, complex and evolving threats liable to have material financial and reputational impacts on all companies, and specifically those in the banking sector. Given the increasing sophistication of criminal enterprises behind cyber attacks, regulatory and supervisory authorities have begun highlighting the importance of ICT (Information and Communication Technology)risk management. Natixis has made the resilience of its technical infrastructures, business continuity, and data transmission security a top priority, both in terms of preempting and being capable of respondingto threats.However,as cyber attacks are constantly evolvingto becomeincreasinglycomplex,these effortsmay not be sufficient to fully protect Natixis, its employees,its partners and client. Despite the precautions taken by Natixis, such attacks could potentially disrupt client services or result in the alternation or disclosure of confidential data, or even disrupt business. The consequences in terms of data recovery and verification costs or reputational harm could have a negative impact on Natixis’ business, operating results and financial situation. Any interruption or failure of Natixis’ information systems, or those of third parties, may result in lost business and other losses Like most of its competitors, Natixis relies heavily on its communication and information systems to process high volumesof increasinglycomplextransactionsfor its businesses. Any breakdown, interruption or failure of these systems could result in errors or interruptions to customer relationship management, general ledger, deposit, transaction and/or loan processing systems. If, for example, Natixis’ information systems failed, even for a short period, it would be unable to meet customers’needs in a timely manner and could thus lose transaction opportunities.Likewise, a temporary breakdown of Natixis’ information systems, despite back-up systems and contingency plans, could result in considerable information retrieval and verification costs, and even a decline in its businessif, for instance,such a breakdownoccurredduring the implementationof hedging transactions.The inability of Natixis’ systems to accommodatean increasingvolume of transactions could also undermine its business development capacity. Natixis is also exposed to the risk of an operational failure or interruption by one of the clearing agents, foreign exchange markets, clearing houses, custodians or other financial intermediariesor externalserviceprovidersit uses to executeor facilitate its securities transactions. With growing interconnectivity with customers, Natixis may also be increasingly exposed to the risk of operational failure of its customers’ informationsystems. Natixis cannot guarantee that such breakdownsor interruptionsin its systems or in those of other partieswill not occur or, if they do occur, that they will be adequatelyresolved.

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Natixis Registration Document 2017