2012 Registration document and annual financial report - BNP Paribas

RISKS AND CAPITAL ADEQUACYAnnual risk survey5The Bank’s competitive position could be harmed if its reputation isdamaged.Considering the highly competitive environment in the financial servicesindustry, a reputation for financial strength and integrity is critical to theBank’s ability to attract and retain customers. The Bank’s reputation couldbe harmed if it fails to adequately promote and market its products andservices. The Bank’s reputation could also be damaged if, as it increasesits client base and the scale of its businesses, the Bank’s comprehensiveprocedures and controls dealing with conflicts of interest fail, or appear tofail, to address conflicts of interest properly. At the same time, the Bank’sreputation could be damaged by employee misconduct, misconductby market participants to which the Bank is exposed, a decline in, arestatement of, or corrections to its financial results, as well as anyadverse legal or regulatory action. The loss of business that could resultfrom damage to the Bank’s reputation could have an adverse effect onits results of operations and financial position.An interruption in or a breach of the Bank’s information systems mayresult in lost business and other losses.As with most other banks, BNP Paribas relies heavily on communicationsand information systems to conduct its business. Any failure orinterruption or breach in security of these systems could result in failuresor interruptions in the Bank’s customer relationship management, generalledger, deposit, servicing and/or loan organization systems. The Bankcannot provide assurances that such failures or interruptions will notoccur or, if they do occur, that they will be adequately addressed. Anincreasing number of companies have recently experienced intrusionattempts or even breaches of their information technology security, someof which have involved sophisticated and highly targeted attacks on theircomputer networks. Because the techniques used to obtain unauthorizedaccess, disable or degrade service or sabotage information systemschange frequently and often are not recognized until launched againsta target, the Bank may be unable to anticipate these techniques or toimplement in a timely manner effective and efficient countermeasures.The occurrence of any failures of or interruptions in the Bank’s informationsystems resulting from such intrusions or from other causes could havean adverse effect on the Bank’s reputation, financial condition and resultsof operations.Unforeseen external events can interrupt the Bank’s operations andcause substantial losses and additional costs.Unforeseen events such as political and social unrest, severe naturaldisasters, terrorist attacks or other states of emergency could lead to anabrupt interruption of the Bank’s operations and, to the extent not coveredby insurance, could cause substantial losses. Such losses can relate toproperty, financial assets, trading positions and key employees. Suchunforeseen events could also lead to additional costs (such as relocationof employees affected) and increase the Bank’s costs (particularlyinsurance premiums).The Bank is subject to extensive and evolving regulatory regimes in thecountries and regions in which it operates.The Bank is exposed to regulatory compliance risk, such as the inabilityto comply fully with the laws, regulations, codes of conduct, professionalnorms or recommendations applicable to the financial services industry.This risk is exacerbated by the adoption by different countries of multipleand occasionally diverging legal or regulatory requirements. Besidesdamage to the Bank’s reputation and private rights of action, noncompliancecould lead to significant fines, public reprimand, enforcedsuspension of operations or, in extreme cases, withdrawal of operatinglicenses. This risk is further exacerbated by continuously increasingregulatory oversight. This is the case in particular with respect tomoney laundering, the financing of terrorist activities or transactionswith countries that are subject to economic sanctions. For example,U.S. regulators and other government authorities have in recent yearsstrengthened economic sanctions administered by the Office of ForeignAssets Control of the U.S. Department of Treasury (“OFAC”) as well asthe related legal and regulatory requirements (see “note 8 – ContingentLiabilities: Legal Proceedings and Arbitration” in the Bank’s financialstatements for more information in this respect).More generally, the Bank is exposed to the risk of legislative or regulatorychanges in all of the countries in which it operates, including, but notlimited to, the following:■ monetary, liquidity, interest rate and other policies of central banksand regulatory authorities;■ general changes in government or regulatory policy that maysignificantly influence investor decisions, in particular in the marketsin which the Group operates;■ general changes in regulatory requirements applicable to the financialindustry, such as rules relating to applicable capital adequacy andliquidity frameworks;■ general changes in securities regulations, including financial reportingand market abuse regulations;■ changes in tax legislation or the application thereof;■ changes in accounting norms;■ changes in rules and procedures relating to internal controls; and■ expropriation, nationalization, confiscation of assets and changes inlegislation relating to foreign ownership.These changes, the scope and implications of which are highlyunpredictable, could substantially affect the Bank, and have an adverseeffect on its business, financial condition and results of operations.52012 Registration document and annual financial report - BNP PARIBAS 225