2012 Registration document and annual financial report - BNP Paribas

5RISKSAND CAPITAL ADEQUACYCompliance and reputation risk5.11 Compliance and reputation risk [Audited]Effective management of compliance risk is a core component of theBank’s internal control framework and covers adherence to applicablelaws, regulations, codes of conduct and standards of good practice.Compliance also involves protecting the Group’s reputation as well as thereputation of its investors and customers; ensuring that members of staffact in an ethical manner and avoid conflicts of interest; protecting theinterests of its customers and the integrity of the market; implementinganti-money laundering procedures, combating corruption and terroristfinancing; and respecting financial embargos.As required by French regulations, the Compliance f unction managescompliance risk for all of the Group’s domestic and internationalbusinesses. The Compliance f unction reports to the Chief Executive Officerand has direct, independent access to the Board’s Internal Control, Riskand Compliance Committee.The function includes a central structure in Paris responsible foroverseeing and supervising all compliance matters, and local teamswithin the Group’s various core businesses, retail operational entities,business lines and functions acting under delegated authority from thecentral team. This system is reinforced continuously.Management of compliance and reputation risks is based on a system ofpermanent controls built on four axes:■ general and specific procedures;■ coordination of action taken within the Group to guarantee theconsistency and effectiveness of monitoring systems and tools;■ deployment of tools for detecting and preventing money laundering,terrorist financing and corruption, and detecting market abuses, etc.;■ training, both at Group level and in the divisions and business lines.Protecting the Bank’s reputation is high on the Group’s agenda. Itrequires ongoing revisions to the risk management policy in line withdevelopments in the external environment. The Group has strengthenedits anti-money laundering, terrorist financing and corruption techniquesdue to the international climate, the increasing number of fraudulentpractices in the market and the introduction of tighter regulations bymany countries.55.12 Insurance risks [Audited]BNP PARIBAS CARDIF RISK MANAGEMENT SYSTEMBNP Paribas Cardif is exposed to the following risks:■ market risk, risk of incurring a loss of value due to adverse trends inthe financial markets, arises mainly from mismatches between assetsand liabilities, which for the most part stem from maturity mismatchesand the existence of a minimum guaranteed return for policyholders;■ underwriting risk, the risk of incurring a loss of value due to changesin benefits to be paid to policyholders, stems from statistical,macro-economic or behavioural trends as well as the occurrence ofcatastrophe events, that is low probability, high financial intensityevents;■ credit risk, risk of incurring a loss of value due to the impact of changesin the credit quality of the business’s obligors, arises on both theissuers of financial instruments in which the various BNP Paribas Cardifentities invest the premiums received from their policyholders, andon receivables representing accrued insurance business due to thoseentities from distributors and reinsurers;■ operational risk, risk of incurring a loss due to inadequate or failedinternal processes, or due to external events.Management of these risks done within BNP Paribas Cardif’s risk profileand its risk preferences:■ insurance risks profile is defined by two indicators: (i) maximumdeviation between pre-tax income and budget at the 90% quantile,and (ii) the target solvency ratio in the current regulatory environment,that is Directive 73/239/EC or Solvency I, as transposed into the FrenchInsurance Code;■ at 31 December 2012, The Solvency I ratio stands at 115% beforeunrealised gains on assets and technical provisions. Includingunrealised gains, the Solvency I ratio is superior to 200%. BNP Paribas3162012 Registration document and annual financial report - BNP PARIBAS