2020 Universal registration document and annual financial report - BNP PARIBAS 339

5risks and CaPital adequaCy Pillar 3

5

Risk management [Audited]

As a strongly diversified Group, both in terms of geography and businesses, BNP Paribas is able to balance risks and their consequences as they materialise. The Group is organised and managed in such a way that any difficulties arising in one business area will not jeopardise another in the Bank;

■ the Group s mission and commitments:

The mission of BNP Paribas is to finance the economy and advise its clients, by supporting them with their projects, their investments, and the management of their savings, guided by strong ethical principles. Through these activities, BNP Paribas wants to have a positive impact on stakeholders and on society, and be one of the most trustworthy players in the sector. BNP Paribas twelve commitments as a Responsible Bank include in particular the commitment to apply the highest ethical standards and rigorously manage environmental, social, and governance risks (see section 7.2 Economic Responsibility: financing the economy in an ethical manner).

SPREADING THE RISK CULTURE Robust risk management is an integral part of the Bank s principles. A culture of risk management and control has always been one of its top priorities.

BNP Paribas launched the Risk Culture, a Group-wide initiative, giving it the objective of reinforcing the communication of the best practices in risk management. Sponsored by four functions: Compliance, LEGAL, HR, and RISK, Risk Culture is designed for the benefit of all staff and intervenes on all types of risks to which the Group may be exposed, including credit, market, liquidity, operational, compliance, regulatory, environmental and

social risks. Taking an adaptive and participative approach, this initiative supports the business lines in their process of understanding risks, for example in transformation projects or when onboarding new employees. In particular, it takes special care to ensure that conduct and behaviour requirements are well integrated, beyond the mission of transmitting knowledge.

In conjunction with operational entities, Risk Culture actions mainly consist of:

■ ensuring the dissemination of information and professional development in the area of risk management, by means of conferences and the publication of educational articles or videos;

■ facilitating the sharing of knowledge between the various players in the Bank, in particular changes in the Bank s business lines, news on regulatory requirements and new ways of working. The experts of the Group are invited to expand documentary resources which can be accessed by employees via a dedicated online platform.

In all its initiatives, Risk Culture promotes the six fundamental risk management practices that are key to developing a robust risk culture. They serve as a reminder to staff about the importance of clearly understanding and anticipating risks with a long-term perspective, being disciplined with risks taken and reporting swiftly and transparently on risk issues.

Lastly, the risk culture is also spread throughout the Group by linking compensation to performance and risk (see chapter 7, section entitled A competitive compensation policy), under a system that was strengthened in this area since 2015 for those employees whose decisions entail a significant risk component.

RISK APPETITE

DEFINITION AND OBJECTIVES The Group does not have a specific risk appetite target, but some risks are inherent to its business and therefore to the achievement of its strategic objectives. It has prepared a Risk Appetite Statement and Risk Appetite Framework, which should be seen as the Group s formal statement of its tolerance to the risks to which it is exposed as it implements its strategy.

The Risk Appetite Statement is approved on a yearly basis by the Board of directors on the proposal of Executive Management. Consistent with the Group s strategy and in light of the environment in which it operates, this document sets out the qualitative risk principles it intends to follow in its business activities, as well as a quantitative mechanism for supervising the Group s risk profile indicators through quantitative metrics and thresholds. This system covers both the quantifiable and non-quantifiable risks to which it is exposed.

The Group s risk appetite is determined by Executive Management, through the various committees it chairs (CCDG, CMRC, Group ALCo, and Capital Committee), which are tasked with managing the Group s different

types of risk exposure. The Group s strategic processes, such as budget, capital and liquidity management, are in line with the Risk Appetite Statement. Certain Risk Appetite Statement indicators are included in the budget exercise and their expected values in the budget are cross- checked against the thresholds in the Risk Appetite Statement.

The Group s Risk Appetite Statement reflects the core values of its risk culture. It states that the Group s risk culture and its commitments as a responsible bank are at the heart of its strategy. The Statement reaffirms the Group s mission: to finance the economy, advise its clients, and help to finance their projects, guided by strong ethical principles. The Group s strategy underpinning its risk appetite is founded on the core principles that have guided its development: a balance between business activities to deliver profitability and stability, a customer-focused business model and an integrated banking model to optimise services to the latter. This strategy also factors in developments in the banking industry, including the trend towards a digital model, an uncertain macro-economic outlook, marked by a low rates environment, and stringent regulatory constraints.