2018 REGISTRATION DOCUMENT AND ANNUAL FINANCIAL REPORT

2018 Registration document and annual fi nancial report - BNP PARIBAS158

4 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

Notes to the fi nancial statements

4.6 Notes to the fi nancial statements prepared in accordance with IFRS as adopted by the European Union

Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES APPLIED BY THE GROUP

1.a ACCOUNTING STANDARDS

1.a.1 Applicable accounting standards

The consolidated fi nancial statements of the BNP Paribas Group have been prepared in accordance with international accounting standards (International Financial Reporting Standards IFRS), as adopted for use in the European Union(1). Accordingly, certain provisions of IAS 39 on hedge accounting have been excluded, and certain recent texts have not yet undergone the approval process.

Information on the nature and extent of risks relating to financial instruments as required by IFRS 7 Financial Instruments: Disclosures and to insurance contracts as required by IFRS 4 Insurance Contracts , along with information on regulatory capital required by IAS 1 Presentation of F inancial S tatements are presented in chapter 5 of the Registration document. This information, which is an integral part of the notes to the BNP Paribas Group s consolidated fi nancial statements, is covered by the opinion of the Statutory Auditors concerning the consolidated fi nancial statements, and is identifi ed in the Annual Report by the word Audited .

IFRS 9 Financial Instruments and IFRS 15 Revenue from C ontracts with C ustomers Since 1 January 2018, the Group applies:

■ IFRS 9 Financial Instruments and amendments to IFRS 9: Prepayment Features with Negative Compensation adopted by the European Union, on 22 November 2016 and on 22 March 2018 respectively.

IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement , related to the classification and measurement of financial instruments. It sets out the new principles for the classifi cation and measurement of fi nancial instruments (Phase 1), for impairment for credit risk on debt instruments measured at amortised cost or at fair value through shareholders equity, loan commitments given, fi nancial guarantee contracts, lease and trade receivables and contract assets (Phase 2), as well as for general hedge accounting; i.e. micro hedging (Phase 3).

IFRS 9 has modifi ed the provisions relating to the own credit risk of fi nancial liabilities designated as at fair value through profi t or loss (fair value option).

As regards hedge accounting (micro-hedging), the Group has maintained the hedge accounting principles under IAS 39. Besides, IFRS 9 does not explicitly address the fair value hedge of the interest rate risk on a portfolio of fi nancial assets or liabilities. The provisions of IAS 39 for these portfolio hedges, as adopted by the European Union, continue to apply.

■ the amendment to IFRS 4 Insurance Contracts : Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts adopted by the European Union on 3 November 2017.

This amendment provides the option for entities that predominantly undertake insurance activities to defer the effective date of IFRS 9 until 1 January 2021(2). The effect of such a deferral is that those entities may continue to report their fi nancial statements under the existing standard IAS 39.

This temporary exemption from IFRS 9, which was limited to groups that predominantly undertook insurance activities according to the IASB amendment, has been extended to the insurance sector of fi nancial conglomerates as defi ned by the Directive 2002/87/EC as adopted by the European Union. This exemption is subject to conditions, notably the absence of internal transfer of fi nancial instruments, other than fi nancial instruments that are measured at fair value through profi t or loss, between insurance entities and other entities of the fi nancial conglomerate.

BNP Paribas Group applies this amendment to all its insurance entities, including funds related to this activity, which will apply IAS 39 Financial instruments: Recognition and Measurement until 31 December 2020.

■ IFRS 15 Revenue from Contracts with Customers adopted by the European Union on 22 September 2016.

IFRS 9 and IFRS 15 introduce the option not to restate the comparative fi gures for prior periods. Since the Group has retained this option, the comparative fi nancial statements for 2017 have not been restated for these changes in method.

The introduction of other standards and amendments which are mandatory as of 1 January 2018 did not have an effect on the 2018 fi nancial statements .

(1) The full set of standards adopted for use in the European Union can be found on the website of the European Commission at: https://ec.europa.eu/info/business-economy-euro/ company-reporting-and-auditing/company-reporting_en

(2) At its 14 November 2018 Board meeting, the IASB decided to propose an amendment to IFRS 4 that would enable eligible insurance entities to defer the fi rst application of IFRS 9 until 1 January 2022.