310 2019 Universal registration document and annual financial report - BNP PARIBAS

5 risks and CaPital adequaCy Pillar 3

5

Capital management and capital adequacy

and limit the impact of a potential collapse on the economy and public finances. They provide for:

■ powers and instruments for the supervisory authorities to allow for better anticipation and oversight of the recovery of banks in difficulty, particularly by means of recovery plans;

■ powers and instruments for the resolution authorities in order to implement orderly resolution of a bank that would not have been able to recover by itself and would be placed in resolution. This is based among other things on the resolution documents required from banks;

■ the addition of further regulatory requirements for institutions. These requirements which overlap quite largely aim to ensure a sufficient quantity of liabilities able to absorb losses or be converted into equity. In particular, they consist of:

■ a TLAC (Total Loss Absorbing Capacity) minimum ratio for Global Systemically Important Banks (G-SIBs),

■ a MREL (Minimum Requirement for own funds and Eligible Liabilities) applicable to all European institutions;

■ bail-in rules for banks, with a review of the ranking of creditors including a category of TLAC eligible debt (non preferred senior) created in 2016, plus the creation in 2014 of a resolution fund financed by the banks, with the aim of avoiding any recourse to public assistance.

The recommendations of the Financial Stability Board were transposed into French banking law in July 2013, introducing in particular the obligation to create recovery and resolution plans, and resolution powers for the ACPR (Autorité de contrôle prudentiel et de résolution).

On a European level, the Directive 2014/59/EU (BRRD - Bank Recovery and Resolution Directive) was passed in 2014 and has been transposed into the law of all European Union Member States. This directive, as well as the Regulation (EU) No. 806/2014 (SRM Regulation - Single Resolution Mechanism Regulation) of 2014 and various additional delegated regulations, form all of the current regulations governing the recovery and resolution of European financial institutions. The amendments contained in BRRD 2, CRD 5 and CRR 2 proposed by the European Commission in November 2016 were approved and published in the Official Journal on 7 June 2019. At a national level, the transposition of BRRD 2 and CRD 5 must be finalised by 28 December 2020.

Recovery Plan

The recovery plan, prepared at Group level, describes the possible recovery options if the Group were to find itself in a distressed situation. It also contains information needed by the authorities to understand the Group s operations, resilience and capacity to absorb losses.

BNP Paribas submitted its updated Recovery Plan to its supervisor, the ECB, in September 2019. The Single Resolution Board (SRB) and other authorities can obtain the Recovery Plan from the ECB.

Prepared in accordance with the Financial Stability Board s recommendations, and pursuant to the provisions of the French Monetary and Financial Code, this Recovery Plan was submitted to the Board of Director s Internal Control, Risk Management and Compliance Committee

(CCIRC) for review and then to the Board of directors for approval (see chapter 2 Corporate governance and Internal Control).

The new version of the Plan includes updated figures and takes account of changes in the Group s organisation and activities. It is accompanied by a detailed description of the recovery scenarios used and the impacts of the recovery options identified. It also takes account of the comments of the ECB and the Recovery College s participating authorities, which met in January 2019, as well as developments in European regulations.

This Recovery College, organised under the auspices of its supervisor, the ECB, brings together the authorities of the member countries of the European Union in which BNP Paribas has a presence, as well as the European Banking Authority.

Resolution documentation

In December 2019, BNP Paribas submitted a set of documents to the Autorité de contrôle prudentiel et de résolution (ACPR) to be forwarded to the Single Resolution Board (SRB). These documents contain information that may be needed by the authorities to prepare a plan for the resolution of BNP Paribas, should it become necessary.

Since 2016, the Bank provides annually a series of templates. These include an analytical declaration of the Bank and its subsidiaries liabilities (Liability Data Report), required by the SRB to clarify the situation in its analyses of future requirements for liabilities eligible for bail-in, as well as various financial analyses, a presentation on the Bank s organisational structure and even analyses of its critical functions and operational continuity in resolution. These declarations are in line with the requirements formalised by the EBA (on behalf of the Commission).

In 2019, BNP Paribas took part in a series of working meetings of the Internal Resolution Team (IRT), including the SRB, the ACPR and other EU bank resolution authorities, under the auspices of the SRB.

The purpose of these meetings, in which a series of questionnaires completed by BNP Paribas were discussed, was to deepen the SRB s analyses of the Group s capacity to deal with resolution measures.

The Crisis Management Group (CMG) and the Resolution College met in September 2019 to approve the resolution plan drafted by the SRB.

The resolution strategy recommended by the SRB for major institutions such as BNP Paribas is that of bail-in which, in contrast to bail-out , involves the absorption of losses through the bank s internal resources. This is reflected in the cancellation or reduction in the nominal value of a debt and/or its complete or partial conversion into equity. For major centralised banking groups such as BNP Paribas, this resolution strategy is applied at the Single Point of Entry (SPE), i.e. BNP Paribas SA, regardless of where the losses occur within the Group.

With regard to the U.S. authorities, in December 2018, BNP Paribas presented a resolution plan for its activities in the United States, pursuant to Rule 165(d) of the Dodd-Frank Act. The next plan will be submitted in 2021.