436 2019 Universal registration document and annual financial report - BNP PARIBAS

5 risks and CaPital adequaCy Pillar 3

5

Operational risk

OPERATIONAL RISK EXPOSURE

The chart below shows the losses linked to operational risk, according to the event classification defined in the current regulation.

➤ FIGURE 14: OPERATIONAL LOSSES BREAKDOWN BY EVENT TYPE (AVERAGE 2011-2019)(*)

63% (2018: 63%) Clients,

products and business practices

2% (2018: 1%) Employment practices and

workplace safety

13% (2018: 13%)

3% (2018: 3%) Business disruption and system failures

1% (2018: 1%) Damage to physical assets

External fraud

17% (2018: 18%) Execution, delivery and process management

1% (2018: 1%) Internal fraud

(*) Percentages in brackets correspond to average loss by type of event for the 2010- 2018 period.

In the period 2011-2019, the main type of operational risk falls within the category of Clients, products and business practices , representing on average more than half of the Group s financial impacts. The magnitude of this category is related to the financial terms of the comprehensive settlement concluded in June 2014 with the U.S. authorities with respect to the review of certain U.S. dollar transactions. Process failures, mainly including execution or transaction processing errors, and external fraud are the types of Group incidents with the second and third highest financial impact, respectively.

BNP Paribas Group pays the utmost attention to analysing its operational risk incidents in order to continuously improve its control system.

CAPITAL REQUIREMENT CALCULATION

Operational risk-weighted assets are calculated by multiplying the capital requirement by 12.5.

APPROACH ADOPTED BNP Paribas uses a hybrid approach combining the Advanced Measurement Approach (AMA), standardised approach, and basic indicator approach.

In terms of net banking income, most legal entities within the Group s prudential scope of consolidation use the Advanced Measurement Approach (AMA). This includes most Retail Banking activities in the domestic networks and Private Banking, as well as Corporate and Institutional Banking.

Advanced Measurement Approach (AMA) Under the AMA for calculating capital requirements, the Bank uses an internal operational risk model based on the four components required by the regulations, namely:

■ internal historical loss data from operational risk;

■ external loss data from operational risk;

■ environmental and internal control factors;

■ analysis of forward-looking scenarios, known as potential incidents in the BNP Paribas Group.