2018 Registration document and annual fi nancial report - BNP PARIBAS 327
5RISKS AND CAPITAL ADEQUACY PILLAR 3
5
Risk management [Audited]
The Risk Academy is an open structure sponsored by four functions: Compliance, LEGAL , HR, and RISK , designed for the benefi t of all staff and covering all types of risks to which the Group may be exposed, including credit, market, liquidity, operational, compliance and regulatory risks, the Risk Academy is organised around an evolving and participative framework intended to strengthen the Group s risk culture. The main aims of the Risk Academy are:
■ to promote training and professional development efforts in the area of risk management;
■ The exchange of information and sharing of knowledge among the Bank s different players.
The Risk Academy defi ned six fundamental risk management practices that are widely disseminated across the Group, through a number of different initiatives. They are key to developing a robust risk culture. They serve as a reminder to staff about the importance of clearly understanding and anticipating risks with a long-term perspective, being disciplined with risks taken and reporting swiftly and transparently on risk issues.
Lastly, the risk culture is also spread throughout the Group by linking compensation to performance and risk (see chapter 7, section entitled A competitive compensation policy), under a system that was strengthened in this area since 2015 for those employees whose decisions entail a signifi cant risk component.
RISK APPETITE
DEFINITION AND OBJECTIVES The Group does not have a specifi c risk appetite target, but some risks are inherent to its business and therefore to the achievement of its strategic objectives. It has prepared a Risk Appetite Statement and Risk Appetite Framework, which should be seen as the Group s formal statement of its toleranc e to the risks to which it is exposed as it implements its strategic plan.
The Risk Appetite Statement is approved on a yearly basis by the Board of directors on the proposal of Executive Management. Consistent with the Group s strategic plan and in light of the environment in which it operates, this document sets out the qualitative risk principles it intends to follow in its business activities, as well as a quantitative mechanism for supervising the Group s risk profi le indicators through quantitative metrics and thresholds. This system covers both the quantifi able and non-quantifi able risks to which it is exposed.
The Group s risk appetite is determined by Executive Management, through the various committees it chairs (CCDG, CMRC, Group ALCo, and Capital Committee), which are tasked with managing the Group s different types of risk exposure. The Group s strategic processes, such as budget, capital and liquidity management, are in line with the Risk Appetite Statement. Certain Risk Appetite Statement indicators are included in the budget exercise and their expected values in the budget are cross- checked against the thresholds in the Risk Appetite Statement.
The Group s Risk Appetite Statement refl ects the core values of its risk culture. It states that the Group s risk culture and its commitments as a responsible bank are at the heart of its strategy. The Statement reaffi rms the Group s mission: to fi nance the economy, advise its clients, and help to fi nance their projects, guided by strong ethical principles. The Group s strategy underpinning its risk appetite is founded on the core principles that have guided its development: a balance between business activities to deliver profi tability and stability, a customer-focused business model and an integrated banking model to optimise services to customers. This strategy also factors in developments in the banking industry, including the trend towards a digital model, an uncertain macro economic outlook, marked by a low rates environment, and stringent regulatory constraints.
RISK PRINCIPLES The risk principles aim to defi ne the types of risk the Group is prepared to accept in support of its business strategy.
They include the following in particular:
■ diversifi cation and risk-adjusted profi tability:
The Group seeks to generate sustainable, client-driven, risk adjusted profi ts. Sustainable profi tability will be achieved based on selectivity and controlled evolution of assets, and the pursuit of a diversifi ed business model. Whilst the Group accepts some level of earnings volatility, it remains attentive to contain, at all times, the level of maximum potential losses in an adverse scenario;
■ solvency and profi tability:
BNP Paribas has suffi cient capital to cope with stress scenarios and to meet regulatory capitalisation standards in force. In the course of serving its clients, BNP Paribas accepts exposure to risks when it earns a proper return over an acceptable timeframe, and when its potential impacts seem acceptable;
■ funding and liquidity:
The Group ensures that the diversifi cation of and balance between its resources and uses of funds correspond to a conservative funding strategy, allowing it to withstand adverse liquidity scenarios. The Group makes sure that it complies with the regulatory liquidity ratios in force;
■ credit risk:
The Group only accepts exposure on customers it knows well, based on comprehensive information, and pays close attention to the structure of the fi nancing it grants. The Group builds and maintains a diversifi ed risk portfolio, avoiding large concentrations (especially on single names, industries and countries) and ensures that it complies with the concentration policies in force;
■ market risk:
BNP Paribas activity in the capital markets is customer-focused. BNP Paribas intends to keep its market risk profi le in line with this customer-focused business mode;
