Banken for en verden i endring The bank for a ... - BNP Paribas

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Banken for en verden i endring The bank for a ... - BNP Paribas

• report of the Chairman / corporate governance at BNp paribas

INTERNAL CONTROL

ANd RISk mANAGEmENT

• Risk management and internal control lie at

the heart of the banking profession (1) . As early

as 1994, the Board of Directors recognised

this central role by setting up its specialised

Committee (2) . Since that time, the responsibilities

usually handled by a standard Audit

Committee have been split between two

specialised bodies: a Financial Statements

Committee and an Internal Control and Risk

Management Committee.

The membership of the Internal Control and

Risk Management Committee and its working

processes (3) have been designed to meet

the stringent requirements of the banking and

prudential fields. BNP Paribas operations

in these sectors are constantly changing in

response to growing regulatory control of the

banking industry, non-stop financial innovation

in banking and BNP Paribas’s own require-

ments regarding the quality of its internal control

processes and risk management policy as

key underpinnings of its development.

In 2006, the Board reviewed the report of

the Chairman of the Internal Control and Risk

Management Committee, drafted based on

information provided by Executive Management,

and examined the following issues.

The Board was briefed on the activities and

deliverables of the internal control function (4) . It

was informed of the key findings of the internal

audit function and of the progress achieved

in implementing its recommendations. It was

given two draft reports for the year ended

31 December 2005, one on internal control

and the other on measuring and monitoring

risks (5) .

The Board was informed of the Group’s

overall policy in the area of financial market

operations and risks (6) , of instruments used

to assess Value at Risk, of the methodology

applied for running stress tests (7) and of the

effects of such stresses on financial market

operations as well as on credit and portfolio

operations.

• In the area of credit risk, it was informed of the

breakdown by geographic area and industry

of the bank’s commitments, as well as

of the concentration of individual major risks

with respect to applicable capital-adequacy

requirements.

• It was informed of the impacts of the Group’s

risk management policy on specific industries

or on Group operations that represent significant

factors in terms of competitive strategy,

such as leveraged buyouts, securitisation, real

estate financing or commodity financing.

The Board was provided with draft reports (8)

for the year ended 31 December 2005 from

the Permanent Control and Periodic Control

functions as well as with the first report from

the Group Compliance function.

(1) The Board of directors should “approve […] the overall risk policy and risk management procedures…”, “meet regularly with senior management and internal audit to review

policies…” (“Enhancing Corporate Governance” – 1st Principle - Basel Committee – February 2006).

(2) “The board can enhance the effectiveness of the internal audit function in promoting the independence of the internal auditor, for example though reporting to the board

or the board audit committee …” (“Enhancing Corporate Governance” - 5th Principle - Basel Committee Feb. 2006).

(3) The report of the Internal Control and Risk Management Committee is provided below in section VIII.

(4) CRBF 97-02 art 38.

(5) CRBF 97-02 art 44 - AFEP-MEDEF 2003 (2.3).

(6) AFEP-MEDEF 2003 (2.3).

(7) The Board is kept informed of the results of measurements carried out to assess the risks to which the Bank would be exposed in the event of substantial changes in the

parameters of a market (CRBF 97-02 art. 27); of the results of measurements of the validity and consistency of market parameters and of risks related to breakdowns in

the assumptions used in simulations (CRBF97-02 art. 30); as well as of the results of measurements carried out at least once a year to assess the liquidity and settlement

risks to which the Bank would be exposed in the event of substantial changes in the parameters of a market or of default by principals (CRBF 97-02 art. 31).

(8) CRBF 97-02 - art. 38.

148

CORPORATE GOvERNANCE

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