1092019 Universal registration document and annual financial report - BNP PARIBAS

2CorPorate GovernanCe and internal Control

2

Internal control

PRODUCING ACCOUNTING AND FINANCIAL INFORMATION

Accounting policies and rules

The local financial statements for each entity are prepared following the accounting standards prevailing in the country where the entity carries on business, while the Group consolidated financial statements are prepared under IFRS (International Financial Reporting Standards) as adopted by the European Union.

Within Finance, the Group Accounting Policies Department defines the IFRS-based accounting principles to be applied to the Group as a whole. It monitors changes to regulations and interprets them as necessary by issuing new principles. A manual of the Group s IFRS accounting principles is available for the divisions/business lines and entities on the internal network communication tools ( intranet ) of BNP Paribas. It is regularly updated to reflect regulatory changes.

In addition, the Group Accounting Policies Department also responds to requests from the divisions/business lines or accounting entities for specific accounting studies, particularly when a new financial product or transaction is designed or recorded in the accounts.

Lastly, another department within Finance is dedicated to the preparation of management principles and standards that take into account the needs identified by the management channel. These principles and standards can also be accessed using internal network tools (intranet).

The regulations relating to solvency fall under the Risk Function (with the contribution of the Finance Function), while regulations on liquidity fall under the ALMT (with the contribution of the Finance and Risk Functions) and regulations relating to the leverage ratio fall under the Finance Function (with the contribution of the Risk function).

Data processing system

The data processing system is structured around two distinct channels:

■ the accounting channel: this is more specifically responsible for preparing the financial and analytical accounting of the entities and for preparing the Group s consolidated financial statements in accordance with accounting policies and standards. It also produces related information on solvency and liquidity, ensuring that it is consistent with the accounting at each level. The channel certifies the reliability of the information produced by applying internal certification procedures (described below).

Moreover, as part of the Single Channel programme, systems for generating accounting refunds were enhanced with specific credit risk and liquidity data in addition to the accounting and analytical data already present. This development, coupled with the implementation of a shared reporting platform, currently being rolled out, will ultimately facilitate the achievement of financial and regulatory reporting requirements.

■ the management channel: this channel prepares the management information (especially that from the divisions/business lines compiled from the data per entity) that is relevant to the economic management of activities, complying with the established internal principles and standards. It ensures the consistency of the management data with the accounting data, at every level. This channel is responsible for the preparation of solvency and liquidity ratios and for their analysis.

Finance designs, distributes and administers the reporting tools for the two channels. These tools are designed to suit the channels individual objectives and necessary complementarity, and provide information for the entire Group. In particular, Finance promotes the use of standard accounting systems in Group entities. The systems are designed at Group level and progressively rolled out. This approach promotes the sharing of information and facilitates the implementation of cross-functional projects in the context of the development of pooled account processing and synthesis within the Group.

For the preparation of liquidity-related data, the Group has adopted the principle of integrating internal management data and those required for regulatory reporting, which is based on the following system:

■ governance involving Finance, ALMT and the Risk Function, at Group level and at the level of the divisions/business lines and entities;

■ policies and methodologies applicable as required by regulations;

■ a dedicated Group tool ensuring data collection and the production of internal and regulatory reports drawing on tools and processes implemented at the level of the divisions/business lines and entities.

This series of measures ensures the production of regulatory reports on liquidity as well as internal monitoring indicators and contributes to reporting relating to the bank resolution.

PERMANENT CONTROL OF ACCOUNTING AND FINANCIAL INFORMATION

Internal control within the Finance Function

Finance has a Group Control & Certification Department to enable it to monitor the control of accounting and financial information risk in a centralised manner. Its main tasks include:

■ defining the Group s policy as regards the accounting internal control system. This system requires accounting entities to follow rules in organising their accounting internal control environments and to implement key controls ensuring that the information in their consolidation packages is reliable. The Group has issued internal accounting control guidelines for use by the consolidated entities and a standard accounting control plan listing the major mandatory controls aimed at covering the accounting risk;

■ ensuring that the internal control environment for accounting and financial information functions properly within the Group, in particular via the procedure for internal certification of accounts described below; to report quarterly to Executive Management and the Board s Financial Statements Committee on the quality of the Group s financial statements;

■ together with the Risk Function, overseeing the proper functioning of the system for collecting and processing consolidated credit risk reporting, including by means of a specific certification system and quality indicators;

■ monitoring the implementation by entities of recommendations from the Statutory Auditors and from General Inspection relating to the accounting risk, with the support of the divisions/business lines. This monitoring is facilitated by use of a dedicated tool that enables each entity to monitor the recommendations made to it and to regularly report on the progress made on the various action plans. Centralised