274 2019 Universal registration document and annual financial report - BNP PARIBAS

5 risks and CaPital adequaCy Pillar 3

5

Annual risk survey

Technological innovations

Technological developments related to the growing use of data in all production, marketing, and distribution processes, and to data sharing among economic players (producers, suppliers, and customers) will impact the economic models of the Group s clients and counterparties in a lasting way. These impacts, which are sometimes hard to assess in a context where new standards, economic balances, and regulatory entities are in the process of evolving and adapting, are being analysed internally by industry experts focused on the economic sectors most exposed to this evolution.

Furthermore, the Group s competitive environment is undergoing profound change, with the emergence of new fintech players, and the emergence of technological innovations which disrupt the traditional value chains of Group s businesses, and place the quality of the customer experience, and the use of new technologies to reduce the cost of low added-value operations, as their key competitive success factors. Maintenance of the Group s information systems must be done in this context of evolving value chains. The Group is deploying a proactive strategy in this area to adapt its activities to these major technological developments and promote some industrial cooperation with fintech players.

Evolving regulatory environments

Beyond the regulatory measures recently adopted or pending adoption, and already cited as top risks, the trend towards growing complexity and regional differences in the bank regulatory environment and related supervision is creating relative uncertainty over future developments, compliance costs, and proper performance risk concerning the various measures. The Group has established an active monitoring system for its regulatory environment, enabling it to minimise these risks.

Possible future divergences by type of regulated entity, for example, depending on their degree of innovation, may also introduce risk of a competitive nature.

Health risks

A viral or bacteriological infection that is potentially resistant to antibiotics, antiviral drugs or other treatments is an increasing possibility and could lead to preventive measures and disruptions to trade.

Such infections could cause infrastructure and production line failures, with consequences for all stakeholders.

Demographic risk

The ageing population is a major underlying trend in many countries. In the years and decades to come, this change significantly impact economic growth (this is already visible), as well as healthcare and retirement budgets, or saving and consumption behaviours.

Societal issues

In addition to responses designed to meet its customers changing needs, the Group is seeks, on a more general basis, to responding to the expectations of the society in which it operates in terms of how it conducts its business, respect for human rights and environmental protection. The BNP Paribas Group Code of conduct defines standards of conduct in line with the values and missions determined by the Bank.

AREAS OF SPECIAL INTEREST IN 2019

United Kingdom

On 23 June 2016, the United Kingdom held a referendum which resulted in a majority vote to leave the European Union ( Brexit ).

The withdrawal agreement was approved by the Parliament of the United Kingdom on 22 January 2020 and by the European Parliament on 29 January 2020. As a consequence, the United Kingdom formally left the European Union on 31 January 2020. The transition period during which the European Union and United Kingdom must agree the terms of their future relationship began on 1 February 2020 and is scheduled to end on 31 December 2020 barring any extension. During that period, the regulatory environment will not change.

The BNP Paribas Group operates in the United Kingdom through several branches and subsidiaries (see section 8.6 I. Locations by country in chapter 8 General Information). Its business, which it carries out mainly with corporations through its BNP Paribas SA branch in the United Kingdom, is of limited size for the scale of the Group and does not include a Retail Banking network in that country. At 31 December 2019, BNP Paribas generated 7.8% of its pre-tax operating income in the United Kingdom (see section 8.6 II. Profit and loss account items and headcount by country in chapter 8 General Information).

With respect to exposure to counterparties whose main business is in the United Kingdom, commercial commitments at 31 December 2019 represent 5.0% of the Group s total gross commitments, on- and off- balance sheet (see Table 27: Credit risk exposure by geographic region). Similarly, exposure to British sovereign risk is contained at 4.0% of the banking book s sovereign exposure (see Appendix 1 Sovereign exposures). The Bank s structural foreign exchange and interest rates position in pounds sterling is very moderate: outstanding loan amounts are low and funding in pounds sterling is largely matched.

The Group has prepared for Brexit with a view to ensuring the continuity of its activities. Its diversified business model in Europe in terms of both business lines and countries provides it with a high degree of flexibility to adapt to this new environment.

In practice, the Group has worked with the British and European regulators in order to ensure the continuity of its operational systems and has prepared various adaptation measures to enable clients, whether based in the United Kingdom or in Europe, to continue to benefit from the Group s broad range of banking products and services at the end of the transition period.