2018 REGISTRATION DOCUMENT AND ANNUAL FINANCIAL REPORT

2018 Registration document and annual fi nancial report - BNP PARIBAS110

2 CORPORATE GOVERNANCE AND INTERNAL CONTROL

Internal Control

■ to ensure that the accounting internal control system enables the entity s Finance Department to have suffi cient oversight of the process of preparation of account summaries, and in particular over all the elements necessary for the Group s certifi cation process (described below). To assist in achieving this objective, the tasks involved in accounts closure are formally defi ned. The use of tools to map the processes and associated risks and to document the checks as well as the coordination with other control channels contributes to improving the quality.

Internal Certifi cation Process

At Group level Group Finance uses FACT (Finance Accounting Control Tool) for the internal certifi cation of the quarterly data produced by each entity for the consolidation package; for the validation performed within the Finance Departments of divisions/business lines; and for the consolidation process for which the Group Reporting Department within Group Finance is responsible.

The Finance manager of each entity concerned certifi es to Group Finance that :

■ the transmitted data have been prepared in accordance with the Group s norms and standards;

■ the accounting internal control system guarantees its quality and reliability.

The main certifi cate completed by the entities consolidated by global integration reproduces the results of all of the major controls defi ned in the Group s accounting control plan, and leads to the determination of a rating for each entity. Entities consolidated by the equity method complete an appropriate certifi cate. Finally, non-consolidated entities are certifi ed annually through a simplifi ed procedure.

This internal certifi cation process forms part of the Group s monitoring system for Internal control and enables Group Finance, which has the overall responsibility for the preparation and quality of the Group s consolidated fi nancial statements, to be informed of any problems in the fi nancial statements and to monitor the entities implementation of appropriate corrective measures. A report on this process is presented to Executive Management and to the Financial Statements Committee of the Board of directors at the close of the Group s quarterly consolidated accounts.

This certifi cation system is also in place, in conjunction with the Risk Function, for the information included regulatory reporting on credit risk and the solvency ratio. Those contributing to the reports attest that they have complied with the standards and procedures and that the data used is of appropriate quality. They further describe the results of the controls carried out at the various stages of producing the reports, including the accounting data to credit-risk data reconciliation.

On the same principles, a certification system is in place for the reporting of liquidity-related data. The various contributors report on the compliance of the data transmitted with the standards, and the results of key controls performed to ensure the quality of reporting.

At entity level In order to ensure the oversight of all the processes of preparation of accounting information at the level of each entity s Finance Department, Group Control & Certifi cation recommends implementing an elementary certifi cation (or sub-certifi cation ) process for accounting data whenever the processing of transactions and the preparation of accounting and fi nancial data are organised in a decentralised way that makes such a process necessary.

This is a process by which the providers of the information used to prepare accounting and fi nancial data (e.g. : middle offi ce, back offi ce, Human Resources, Suppliers Accounts, etc.) formally certify that the fundamental controls intended to ensure the reliability of the accounting and financial data under their responsibility function properly. The elementary certifi cates are sent to the local Finance Department, which analyses them in combination with the accounting controls that it exercises directly, prepares a summary report intended to be used to prepare the main certifi cate, and liaises with the various players in order to monitor points requiring attention.

The FACT application also makes it possible to automate this sub- certifi cation process by providing entities with a dedicated environment in which they can directly manage the processes set up at their level.

Control of the value of fi nancial instruments and the use of valuation in determining the results of market activities and accounting reports

Group Finance is responsible for producing and ensuring the quality of the Group s accounting and management information. It delegates the production and control of market values or models for fi nancial instruments to specialists in this area, who thus form a single, integrated channel for valuing such instruments. The processes covered include:

■ verifying the appropriateness of the valuation system as part of the approval process for new transactions or activities;

■ verifying the proper recording of transactions in the systems and ensuring it is appropriate with the valuation methodologies;

■ verifying the development and approval mechanism independent of the valuation methods;

■ determining the market parameters and the procedure for an independent verifi cation of these parameters;

■ determining valuation adjustments for market, liquidity and counterparty risks;

■ classifying instruments within the fair value hierarchy, determining day one profi t adjustments, estimating the sensitivity of level 3 valuations to valuation assumptions.

Through appropriate processes and tools, the channel s objectives are to ensure both the correctness and the reliability of the process for valuing fi nancial instruments, and the quality and comprehensiveness of the control system. It can thus provide the appropriate data to the various decision-making bodies, data that also informs the operational processes for compiling the accounting and management results, and ensures the transparency of annexes dedicated to fair value.