PSA - 2019 Universal Registration Document

GROUPE PSA Risk factors DPEF.B

EXPOSURE TOCHANGES IN CUSTOMS TARIFS HIGHRISK

1.5.3.3.

Riskfactors

Riskmanagement andcontrolprocesses

As part of its internationalbusiness, the Group’s Automotive division is exposed to fluctuationsin customs tariffs (customs duties applied to goods imported fromanother country). This economic risk takes two forms: 1. the hike in customs tariffs (seeSino-American tariff dispute); 2. the reconsideration of freetrade agreements. In 2019,thepossibilityof theUnitedKingdom leavingtheEuropean Unionwithouta free tradeagreement(HardBrexit)was identified as a major economicrisk (customs duties of 10% on cars and around3.5% for parts). Added to which, a risk in relationto the procurementof parts and vehicles in trade between these two countries/groups of countriesas a result of the reintroductionof customs formalities.

The Tax and CustomsDepartmenthas customsemployeesin high-stakes ubsidiaries in termsof customsdutiesandindustrial activity (Latin America, Russia, China, India, UK, etc.). These employeesparticipate in a regulatorywatchthatenablesthemto learnof any fluctuations in customstariffsor the introductionof any freetrade agreements. To limit Brexit-relatedprocurementrisk, the Group set up a cross-functionalworkinggroup,comprisingemployeesfromthe Public Affairs, Purchasing, Customs, Logistics and Approval Departments, etc.The objective of this working group is to ensure that all risks and changes resulting from Brexit are correctly identified.

EXPOSURE TOCHANGES IN ENERGY COSTS HIGHRISK 1.5.3.4.

Riskfactors

Riskmanagement andcontrolprocesses

TheGroup’sAutomotivedivisionis exposedto the risk of “changes in energycosts”throughits purchaseof electricityand naturalgas to meetits industrialand tertiary energy requirements. In 2019, these energy purchases accounted for close on €300 million in the Europeregion. The main materialsused are: electricity(60% of the total energy purchase costs), naturalgas (40%). TheGroup has identified two main types ofraw materials risk: 1. economic risk; 2. procurement of volumes.

In the light of these risks, the PurchasingDepartmentemploys variousactionlevers:sourcingprotection,bulkpurchases,energy efficiency projects, clean energy means of production, and volume hedging. In order to limit energy-relatedeconomicrisk, since 2018, the Grouphas employeda financialhedgingprocessfor energy,to supplementthe physicalhedgingthat existedpreviously.Every quarter,recommendations, accordingto establishedgovernance rules, are submitted to the Chief Financial Officer and the Directorof GroupPurchasingfor arbitrationand approval.The Protection,Audit and Risk ManagementDepartmentregularly audits thisprocess.

RISKS RELATEDTO BANQUE PSAFINANCE LOWRISK

1.5.3.5.

Riskfactors

Riskmanagement andcontrolprocesses

BanquePSAFinanceis primarilyexposed,as a resultof its captive financing business, to risks associated with trends in the automotivemarket in the regions where it operates dealership finance,andto changesin theglobaleconomicsituationin relation to credit risk, in respectof all ofits privateand business customers. The expansionand digitalisationof its operations,bothduringthe acquisitionprocessand in the day-to-daymanagementof credit histories,exposestheBank to an increasing risk ofcybercrime. Liquidityand refinancing risk is a materialriskwhichis coveredby our partnerships with BNPPPF and SCF. As a resultof its regulatedcreditand insurancebusiness,Banque PSAFinance is exposed to reputational and conduct risk.

Identifying,measuring,controllingandmonitoringBPF’srisksare a keydimensionof riskmanagement,whichis ledby a memberof the bank’sExecutiveCommittee. TheBank’sAuditand Risks Committee and Boardof Directorsare regularly updated on the implementation of themanagement and controlprocessesdescribed below: settingthe levelof acceptedrisk for all materialrisksformalised > in theRisk Appetite dashboard; risk mitigation processesand internal control procedures; > the implementationof periodic stress tests as required or > recommendedby regulations(InternalCapital Adequacyand LiquidityAssessmentProcesses- ICAAP, ILAAP), emergency liquidity plan - PUL, preventiverecoveryplan, etc.,making it possibleto accuratelymeasureimpactsassociatedwithrisksof a deteriorationin the automotivemarket and the economic climate; monitoring the global refinancing policy within the context of > the monthly ALCO Committee meeting; monitoringIT risks and, in particular,Cybercrimewithin the > context of an ad hoc committeefacilitatedby the BPF IT Department. In addition,risk controlin the joint operationswithBNPPPF and SCF is the task of JointCommittees,with local Risk Committees formed ineachJV local entity.

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GROUPE PSA - 2019 UNIVERSAL REGISTRATION DOCUMENT