2018 Registration document and annual fi nancial report - BNP PARIBAS292
5 RISKS AND CAPITAL ADEQUACY PILLAR 3
5
Annual risk survey
The Bank faces the risk of changes in legislation or regulation in all of the countries in which it operates, including, but not limited to, the following:
■ monetary, liquidity, interest rate and other policies of central banks and regulatory authorities;
■ changes in government or regulatory policy that may signifi cantly infl uence investor decisions, in particular in the markets in which the Group operates;
■ changes in regulatory requirements applicable to the fi nancial industry, such as rules relating to applicable governance, remunerations, capital adequacy and liquidity frameworks, restrictions on activities considered as speculative and recovery and resolution frameworks;
■ changes in securities regulations as well as in fi nancial reporting, disclosure and market abuse regulations;
■ changes in the regulation of certain types of transactions and investments, such as derivatives and securities fi nancing transactions and money market funds;
■ changes in the regulation of market infrastructures, such as trading venues, central counterparties, central securities depositories, and payment and settlement systems;
■ changes in the regulation of payment services, crowdfunding and fi ntech;
■ changes in the regulation of data privacy and cybersecurity;
■ changes in tax legislation or the application thereof;
■ changes in accounting norms;
■ changes in rules and procedures relating to internal controls, risk management and compliance; and
■ expropriation, nationalization, price controls, exchange controls, confi scation of assets and changes in legislation relating to foreign ownership.
These changes, the scope and implications of which are highly unpredictable, could substantially affect the Bank and have an adverse effect on its business, fi nancial condition and results of operations. Some reforms not aimed specifi cally at fi nancial institutions, such as measures relating to the funds industry or promoting technological innovation (such as open data projects), could facilitate the entry of new players in the fi nancial services sector or otherwise affect the Bank s business model, competitiveness and profi tability, which could in turn affect its fi nancial condition and results of operations.
The Bank may incur substantial fi nes and other administrative and criminal penalties for non-compliance with applicable laws and regulations, and may also incur losses in related (or unrelated) litigation with private parties.
The Bank is exposed to regulatory compliance risk, i.e. the failure to comply fully with the laws, regulations, codes of conduct, professional norms or recommendations applicable to the fi nancial services industry. This risk is exacerbated by the adoption by different countries of multiple and occasionally diverging and even conflicting legal or regulatory requirements. Besides damage to the Bank s reputation and private rights of action (including class actions), non-compliance could lead to material
legal proceedings, fi nes and expenses (including fi nes and expenses in excess of recorded provisions), public reprimand, enforced suspension of operations or, in extreme cases, withdrawal by the authorities of operating licenses. This risk is further exacerbated by continuously increasing regulatory scrutiny of financial institutions as well as substantial increases in the quantum of applicable fi nes and penalties. Moreover, litigation by private parties against fi nancial institutions has substantially increased in recent years. Accordingly, the Bank faces signifi cant legal risk in its business, and the volume and amount of damages claimed in litigation, regulatory proceedings and other adversarial proceedings against fi nancial services fi rms have substantially increased in recent years and may increase further.
In this respect, on 30 June 2014 the Bank entered into a series of agreements with, and was the subject of several orders issued by, US federal and New York state government agencies and regulatory authorities in settlement of investigations into violations of US laws and regulations regarding economic sanctions. The fi nes and penalties imposed on the Bank as part of this settlement included, among other things, the payment of monetary penalties amounting in the aggregate to $8.97 billion ( 6.6 billion) and guilty pleas by BNP Paribas SA, the parent company of the BNP Paribas Group, to charges of having violated US federal criminal law and New York State criminal law.
Following this settlement, the Bank remains subject to increased scrutiny by regulatory authorities (including via the presence within the Bank of an independent consultant) who are monitoring its compliance with a remediation plan agreed with them.
The Bank is currently involved in various litigations and investigations as summarized in note 8.b Contingent liabilities: legal proceedings and arbitration to its consolidated fi nancial statements as of and for the period ended 31 December 2018. It may become involved in further such matters at any point. No assurance can be given that an adverse outcome in one or more of such matters would not have a material adverse effect on the Bank s operating results for any particular period.
RISKS RELATED TO THE IMPLEMENTATION OF THE BANK S STRATEGY Risks related to the implementation of the Bank s strategic plans.
The Bank announced a strategic plan for the 2017-2020 period on 7 February 2017. This plan contemplates a number of initiatives, including the implementation of new customer pathways, the digital transformation of the Bank, continuing to improve operating effi ciency and various business development initiatives. The Bank closely monitors these initiatives and provided an update on its 2020 targets on 6 February 2019.
The plan also includes a number of fi nancial targets and objectives relating to net banking income, operating costs, net income, capital adequacy ratios and return on equity, among other things. These fi nancial targets and objectives were established primarily for purposes of internal
