2012 Registration document and annual financial report - BNP Paribas

CORPORATE GOVERNANCEReport of the Chairman of the Board of Directors on the manner of preparation and organisationof the work of the Board and on the internal control procedures implemented by the c ompany2INTERNAL C ONTROLThe information below concerning the Group’s Internal Control systemwas provided by Executive Management. The Chief Executive Officer isresponsible for internal control systems and procedures, and for all thestatutory information in the report on Internal Control. This document wasprepared using information provided by the following Group functions:Compliance, Risk Management, Development and Finance, Legal andGeneral Inspection . It was validated by the decision-making body.BNP PARIBAS INTERNAL CONTROLREFERENCESInternal controls in the banking sector in France and internationally areat the centre of banking and financial regulations and are governed by awide range of laws and regulations.The main regulation in this field applicable to BNP Paribas is CCLRFRegulation 97-02 (1) as amended, which defines the conditions forimplementing and monitoring internal control systems in banks andinvestment firms. These rules lay down the principles relating to controlsystems for transactions and internal procedures, accounting systemsand information processing, risk and performance measurement systems,risk supervision and control systems, and internal control documentationand reporting systems. Under article 42 of this Regulation, banks arerequired to prepare an annual statutory report on internal control forthe attention of the Board of Directors.As required by Regulation 97-02, BNP Paribas has set up an internalcontrol system (referred to herein as internal control) in which distinctorganisations and managers are in charge of permanent controls(including Compliance and Risk Management) and periodic controls.The internal control system must also take into account, as appropriate,the AMF’s General Regulations (French Securities Regulator), regulationsapplicable to branches and subsidiaries outside France and to specialisedoperations such as portfolio management and insurance, the most widelyaccepted industry practices in this area and the recommendations ofinternational bodies dealing with the capital adequacy frameworkissues, foremost among which are the Basel Committee, the FinancialStability Board and the European authorities (European Banking Authority,European Securities and Markets Authority).INTERNAL CONTROL DEFINITION,OBJECTIVES AND STANDARDSThe Executive Management of the BNP Paribas Group has set up ani nternal c ontrol system whose main aim is to ensure overall controlof risks and provide reasonable assurance that the Bank’s goals in thisarea are being met. This system is defined in the Group’s Internal ControlCharter, which serves as its basic internal reference document. Widelydistributed within the Group and freely available to all Group employees,this Charter defines internal control as a mechanism for ensuring:■ the development of a strong risk control culture among employees;■ the effectiveness and quality of the Group’s internal operations;■ the reliability of internal and external information (particularlyaccounting and financial information);■ the security of transactions;■ compliance with applicable laws, regulations and internal policies.The Charter lays down rules relating to the organisation, lines ofresponsibility and remit of the various players involved in i nternalc ontrol, and establishes the principle that the different control functions(Compliance, General Inspection and Risk Management) must operateindependently.SCOPE OF INTERNAL CONTROLOne of the fundamental principles of i nternal c ontrol is that it mustbe exhaustive in scope: it applies to the same degree to all types ofrisk and to all entities in the BNP Paribas Group, whether operational(divisions, business lines, functions and territories) or legal (branches andsubsidiaries capable of consolidation), without exception. It also extendsto core services or operational activities that have been outsourced, inaccordance with regulatory requirements, as well as to companies forwhich the Group ensures operational management, even if not integratedin the scope of consolidation.Implementing this principle requires a precise overview of the allocationsof responsibilities and must factor in the ongoing growth in the Group’sbusinesses.FUNDAMENTAL PRINCIPLES OF INTERNALCONTROLInternal control at BNP Paribas is based on the following key principles:■ responsibility of operational staff: the permanent control mechanismmust be incorporated within the operational organisation of theentities. Operational managers must ensure effective control overthe activities for which they are responsible, and all employees areunder a duty to blow the whistle on any problems or failings of whichthey are aware;■ exhaustiveness of internal control (see above, under “Scope of i nternalc ontrol”);2(1) This document is frequently amended so as to improve the efficiency of Internal Control mechanisms.2012 Registration document and annual financial report - BNP PARIBAS 63