2012 Registration document and annual financial report - BNP Paribas

RISKS AND CAPITAL ADEQUACYRisk management55.3 Risk management [Audited]RISK MANAGEMENT ORGANISATIONROLE OF RISK MANAGEMENTRisk management is key in the business of banking. At BNP Paribas,operating methods and procedures throughout the organisation aregeared towards effectively addressing this matter. The entire process issupervised by the Group Risk Management Department (GRM), which isresponsible for measuring and controlling risks at Group level. GRM isindependent from the core businesses, business lines and territories andreports directly to Group Executive Management. The Group Compliance(GC) function monitors operational risk under the authority of GRM andreputation risk as part of its permanent control responsibilities. GRM, andGC for operational and reputation risk, perform continuous, generally exantecontrols that are fundamentally different from the periodic, ex-postexaminations of the Internal Auditors.GENERAL RESPONSIBILITIES OF RISKMANAGEMENTFront-line responsibility for managing risks lies with the divisions andbusiness lines that propose the underlying transactions. GRM continuouslyperforms a second-line control over the Group’s credit, market, liquidityand insurance risks. As part of this role, it must ascertain the soundnessand sustainability of the business plans and their overall alignment withthe risk profile target set by Executive Management. GRM’s remit includesformulating recommendations on risk policies, analysing the risk portfolioon a forward-looking basis, approving corporate loans and trading limits,guaranteeing the quality and effectiveness of monitoring procedures,and defining and/or validating risk measurement methods. GRM is alsoresponsible for ensuring that all the risk implications of new businessesor products have been adequately evaluated.GC has identical responsibilities as regards operational and reputationrisk. It plays an important oversight and reporting role in the processof validating new products, new business activities and exceptionaltransactions.RISK MANAGEMENT ORGANISATIONApproachWhether in its advisory role in business development, in the developmentof methods, policies and procedures, in the decision-making process orthe deployment of monitoring and control systems, GRM must have aperfect grasp of the banking business and be aware of market constraintsand the complexity and urgency of transactions.These objectives have led GRM to position its teams as close as possibleto the Business lines and Countries while preserving their independenceby placing them under the exclusive and direct authority of GRM andby providing impetus and leadership. It is therefore supported by teamslocated within the main centres of activity throughout the organisation,and who do not report to the heads of Core businesses and Businesslines, nor to Head of territory . However, GRM’s supervision can also beindirect, and the Risk Management f unction can be performed througha joint relationship between the Core businesses and GRM when thesubordination relationship is not desirable in terms of effectiveness – forexample, in situations where risks are diverse or very specific – and thissituation is acceptable in terms of the degree of risk.52012 Registration document and annual financial report - BNP PARIBAS 237