2020 Universal registration document and annual financial report - BNP PARIBAS 117

2CorPorate GovernanCe and internal Control

2

Internal control

The Chief Financial Officer of each entity concerned certifies to the Finance Function that:

■ the transmitted data have been prepared in accordance with the Group s norms and standards;

■ the accounting internal control system guarantees its quality and reliability.

The main certificate completed by fully consolidated entities reproduces the results of all of the major controls defined in the Group s accounting control plan, and leads to the determination of a rating for each entity. Entities consolidated by the equity method complete an appropriate certificate. Finally, non-consolidated entities are certified annually through a simplified procedure.

This internal certification process forms part of the Group s monitoring system for Internal control and enables the Finance Function, which has the overall responsibility for the preparation and quality of the Group s consolidated financial statements, to be informed of any problems in the financial statements and to monitor the entities implementation of appropriate corrective measures. A report on this process is presented to Executive Management and to the Financial Statements Committee of the Board of directors at the close of the Group s quarterly consolidated accounts.

This certification system is also in place, in conjunction with the Risk Function, for the information included regulatory reporting on credit risk and the solvency ratio. Those contributing to the reports attest that they have complied with the standards and procedures and that the data used is of appropriate quality. They further describe the results of the controls carried out at the various stages of producing the reports.

On the same principles, a certification system is in place for the reporting of liquidity-related data. The various contributors report on the compliance of the data transmitted with the standards, and the results of key controls performed to ensure the quality of reporting.

At entity level In order to ensure the oversight of all the processes of preparation of accounting information at the level of each entity s Finance Department, Group Financial Controls recommends implementing an elementary certification (or sub-certification ) process for accounting data whenever the processing of transactions and the preparation of accounting and financial data are organised in a decentralised way that makes such a process necessary.

This is a process by which the providers of the information used to prepare accounting and financial data (e.g. middle office, back office, Human Resources, Risk, Suppliers Accounts, etc.) formally certify that the fundamental controls intended to ensure the reliability of the accounting and financial data under their responsibility function properly. The elementary certificates are sent to the local Finance Department, which analyses them in combination with the accounting controls that it exercises directly, prepares a summary report intended to be used to prepare the main certificate, and liaises with the various players in order to monitor points requiring attention.

The FACT application also makes it possible to automate this sub- certification process by providing entities with a dedicated environment in which they can directly manage the processes set up at their level.

Valuation control of financial instruments and the use of the valuation to determine the results of market activities and accounting reports

The Finance Function is responsible for producing and ensuring the quality of the Group s accounting and management information. It delegates the production and control of fair value measurements or models for financial instruments to specialists in this area, who thus form a single, integrated channel for valuing such instruments. The processes covered include in particular:

■ verifying the appropriateness of the valuation system as part of the approval process for new transactions or activities;

■ verifying the proper recording of transactions in the systems and ensuring it is appropriate with the valuation methodologies;

■ verifying the development and approval mechanism independent of the valuation methods;

■ determining the market parameters and the procedure for an independent verification of these parameters;

■ determining valuation adjustments for market, liquidity and counterparty risks;

■ determining and reviewing the rules for making parameters observable;

■ classifying instruments within the fair value hierarchy, determining day one profit adjustments, estimating the sensitivity of level 3 valuations to valuation assumptions.

Through appropriate processes and tools, the channel s objectives are to ensure both the correctness and the reliability of the process for valuing financial instruments, and the quality and comprehensiveness of the control system. It can thus provide the appropriate data to the various decision-making bodies, data that also informs the operational processes for compiling the accounting and management results, and ensures the transparency of appendices dedicated to fair value.

Control of the valuation channel, which involves all participants, is supervised by the Finance Function within the framework of a specific charter and a dedicated governance. This control system is based on a set of organisational principles defined in the Group s Internal Control Charter for each organisational level, i.e. Group, CIB and the main entities that account for market transactions.

To ensure its proper functioning, the Finance Function relies on dedicated teams ( Standards & Controls Valuation Risk and Governance, S&C VRG ), which oversee the entire system. The Finance Function decides on the information that must be reported by the various players: this comprises both quantitative and qualitative data indicating trends in different businesses as well as the results and quality of upstream controls carried out.

Several committees that meet on a quarterly or monthly basis are set up to bring all of the players together to review and examine, for each process and business line, the methods used and/or the results of the controls conducted. These committees operating methods are governed by procedures approved by the Finance Function, ensuring that the Finance Function takes part in the main choices and arbitrations. Lastly, the S&C VRG reports at each accounting quarter-end to the Product Financial Control Committee (PFC), chaired by the Group Chief Financial Officer, on its work, and informs the committee of the points of arbitration