2012 Registration document and annual financial report - BNP Paribas

5RISKSAND CAPITAL ADEQUACYRisk managementRISK PROFILE5DEFINITION AND OBJECTIVESThe Risk Profile policy aims to define the medium to long-term risk profilesought by BNP Paribas. It is reviewed by Executive Management andvalidated by the Board of Directors.The policy embodies within a single coherent system all the riskmanagement tools, processes principles and guidelines used broadlyby the Group to guide its risk-taking, within defined limits. It thereforecontributes to promoting more consistent risk practices within the Group.The policy sets out the broad outlines of the system at Group level and isused as a basis for establishing the target Risk Profile at more granularand entity-specific levels.PRINCIPLESThe principles of the Risk Profile aims to define the types of risk theGroup is prepared to accept in its business activities. They are intendedto remain stable over time.These principles are:■ return adjusted for risk and earnings volatility;■ capital adequacy;■ financing and liquidity;■ concentrations;■ insurance activities;■ non-quantifiable risks.These principles are completed by qualitative guidelines resulting fromdecisions taken by the risk strategy committee. They should be consideredas an integral part of the policy:■ portfolio decisions;■ decisions regarding counterparties;■ decisions on new products or business activities;■ transversal policiesGOVERNANCEIn line with the Group's Risk Profile policy, Executive Management isresponsible for the major guidelines based on three key dimensions –Risk, Capital and Liquidity – through the following c ommittees that reportto the Group's Executive Committee:■ Risk Management Committee;■ Capital Committee;■ ALM Committee;■ Liquidity Committee.The target Risk Profile, i.e. the translation of the Risk Profile principlesand guidelines into the Bank's business activities and risk-taking, isdisseminated and deployed through two complementary, interconnectedprocesses:■ strategic planning and budget process;■ risk taking process (e.g. strategic risk forums), which enables ExecutiveManagement's guidance and decisions to be relayed broadly to therelevant staff.SUPERVISION OF RISK PROFILE INDICATORSExecutive Management translates the Risk Profile policy into a seriesof indicators and limits in order to compare the Group's actual RiskProfile with the target Risk Profile on a quantitative basis ("Risk ProfileIndicators"). These indicators are monitored quarterly in the riskmanagement dashboards.RISKS CATEGORIESThe risk categories reported by BNP Paribas evolve in line withmethodological developments and regulatory requirements.All the risk categories discussed below are managed by BNP Paribas.However, no specific capital requirement is identified for reputation andstrategy risk as these are risks that may lead to a change in share pricewhich is borne directly by the shareholders and cannot be protected bythe Bank’s capital.Reputation risk is thus contingent on other risks and, apart from marketrumours leading to a change in share price, its impacts are included inestimated losses incurred for other risk categories.Similarly, strategy risk arising from the strategic decisions published bythe Bank, which could give rise to a change in share price, is a matter forthe highest level of governance and is the shareholder’s responsibility.The implementation of regulatory definitions in accordance with theBasel Accord (International Convergence of Capital Measurement andCapital Standard), is discussed in sections 5.4 to 5.7 and 5.10 of thischapter.2402012 Registration document and annual financial report - BNP PARIBAS