4372019 Universal registration document and annual financial report - BNP PARIBAS
5risks and CaPital adequaCy Pillar 3
5
Operational risk
BNP Paribas internal model in place since 2008 includes the following features:
■ an aggregate annual loss distribution, meaning that the frequency and severity of losses from operational risks are modelled using an actuarial approach and according to distributions calibrated with available data;
■ it uses historical data as well as prospective scenarios to calculate capital requirements, with a predominance for scenarios because they can be shaped to reflect severe and less frequent operational risks;
■ the model is faithful to its operational risk input data, so that its results can be used easily by each of the Group s business lines. Most of the assumptions are therefore included in the data themselves;
■ it is prudent in its capital requirement calculations: the input data are thoroughly reviewed, and any supplemental risk data are added if needed to cover all relevant operational risks within the Group.
Regulatory AMA capital requirements are calculated as VaR (Value at Risk), or the maximum potential loss over one year, at a 99.9% confidence level to calculate regulatory capital requirements. Capital requirements are calculated at an aggregate level using risk data from all Group entities
in the AMA perimeter, then allocated to business lines and individual legal entities.
Since the second quarter of 2018, risk-weighted assets have been raised to the level of the standardised approach within the AMA scope.
Fixed-parameter approaches
BNP Paribas uses fixed-parameter approaches (basic or standard) to calculate the capital requirements for entities in the Group s prudential consolidation scope that are not covered by the internal model:
■ basic approach: the capital requirement is calculated as the average over the past three years of a financial aggregate based on net banking income (the exposure indicator) multiplied by a unique alpha parameter set by the regulator (15% weighting);
■ standardised approach: the capital requirement is calculated as the average over the past three years of a financial aggregate based on net banking income multiplied by factors set by the regulator and corresponding to each business category. For the purposes of this calculation, all the Group s business lines are broken down into eight regulatory business categories.
RISK-WEIGHTED ASSETS AND CAPITAL REQUIREMENT
➤ TABLE 98: OPERATIONAL RISK CAPITAL REQUIREMENT AND RISK-WEIGHTED ASSETS
In millions of euros
31 December 2019 31 December 2018 Variation
RWAs Capital
requirements RWAs Capital
requirements RWAs Capital
requirements
Advanced Measurement Approach (AMA) 54,278 4,342 56,935 4,555 (2,657) (213)
Standardised approach 10,243 819 10,393 831 (150) (12)
Basic indicator approach 4,371 350 5,619 450 (1,248) (100)
TOTAL OPERATIONAL RISK 68,891 5,511 72,947 5,836 (4,056) (324)
The EUR 4 billion decrease in risk-weighted assets related to operational risk in 2019 may be attributed mainly to the transition to consolidation under the equity method of the Group s non-regulated entities, leading to a EUR 3.5 billion reduction in risk-weighted assets, including EUR 2.4 billion in the AMA scope (after being risen to the standardised approach level).
RISK MITIGATION TECHNIQUES AND INSURANCE POLICIES BNP Paribas Group deals with its insurable risks with the triple aim of protecting its balance sheet, its profit and loss account and its staff. Its insurance set-up is based on risk identification and assessment, underpinned by risk mapping and by analysis of operational loss profile, both historical and forward-looking.
The Group purchases insurance from leaders of the insurance market, covering computer crime, fraud, theft, business disruption, liability and other risks for which it may be held responsible. In order to optimise costs whilst effectively managing its exposure, the Group retains some well identified risks whose impact in terms of frequency and cost is known or can be adequately estimated.
In selecting insurers, the Group pays close attention to the credit rating and claims paying ability of the companies concerned. Detailed information on risks incurred by BNP Paribas as well as risk assessment visits, enable insurers to assess the quality risk prevention within the Group, as well as the safeguard measures put in place and upgraded on a regular basis in light of new standards and regulations.
