CFM INDOSUEZ Wealth Management - 2019 annual report

commercial companies related to an entrepreneur client whose activity or decision-making centre is based in Monaco. Any exception to this scope of counterparties requires prior approval by Indosuez Group’s Executive Management and its RPC department. Indosuez Group has no risk authorisation for financial institutions (CA CIB process). The loan approval process is primarily based on the type of transaction, the delegation system, the approval process and the management of collateral. In Wealth Management, lending is traditionally a supplementary activity intended to secure client loyalty and optimise client assets. It is also a strategic part of the overall offering, in particular for ultra-high net worth clients, but it must foster a lasting relationship based on the management of the client’s assets. The selection of transactions depends on the types of loans granted. There are eight different types of loans, covering cash flow requirements, investments in non-real estate assets, investments in specific assets, mortgage loans, business loans, wealth structuring transactions, private equity investments and guarantees and sureties. The risk measurement and monitoring process includes a review of loans granted at least once per year, a quarterly Substandard Assets Committee, daily monitoring of compliance with limits, and daily and weekly listings sent directly to sales teams to monitor anomalies. The risk measurement system includes the daily monitoring of collateral lending values, an internal scoring system for wealth management clients and a specific approach for corporate clients, including detailed analysis of balance sheets using the group-wide solution, Anadefi. Level two counterparty risk monitoring (compliance with limits, monitoring of collateral, etc.) is performed by the Credit Risk Manager, who carries out the controls and reports to CFM Indosuez Wealth Management’s Executive Management and the Risk and Permanent Control department. Provisions set aside to cover credit risk are limited as exposures are well covered by the nature of investments and the type and coverage ratio of guarantees, which allow rapid recovery by enforcing rights to collateral as required. Provisions in the bank’s separate financial statements totalled € 9.17 million at year-end 2019, compared with € 10.4 million a year earlier. Non-performing and disputed exposures remained under control, at € 27.5 million, representing less than 1% of loans recorded in the balance sheet, which increased from € 3.28 billion to € 3.43 billion at 31 December 2019. Details of credit risk exposure are provided in Note 3.1 to the consolidated financial statements. Market risk: CFM Indosuez Wealth Management’s RPC function, through its Market Activity Monitoring (MAM) unit, is responsible for the entire system for measuring, monitoring and controlling market risks, in order to minimise the business lines’ cost of risk arising from market risk. This unit has the dual role of monitoring, validating and explaining results (P&L) and risk indicators for all activities generating market risks. It calculates risk indicators and VaR on a daily basis, checks that limits and alert levels are observed, and notifies the relationship managers of any breaches. Breaches are reported to the Group every day, using a specific reporting application. MAM monitors management performance, and approves the daily and monthly P&L, including provisions and impairment. It performs the monthly Finance-Management data reconciliation and analyses the output. This reconciliation is approved at each monthly Market Risk Committee, whose permanent members are the Finance and Cash Management departments and the MAM unit. MAM is also responsible for monitoring the quality of service of our Cash Management provider under the outsourcing agreement signed with CAIS. Details of market risk exposure are provided in Note 3.2 to the consolidated financial statements. Counterparty risk: The counterparty selection procedure and limits are provided by Indosuez Wealth Management. Lists including “forbidden” counterparties or those with whom business must be restricted (Do Not Deal & Restricted Dealing lists) are also transmitted and applied locally. Indosuez Wealth Management’s Framework Directive on Wealth Management Credit Risk Management (RPC DB 003), which governs the management of credit risk in wealth management activities, sets out the nature and type of eligible counterparties and the financial solutions that may be envisaged, namely: · Cash flow requirements. · Financing for investments in real estate assets. · Financing for specific assets, supported by specialised expertise within the Group. · Mortgage loans. · Financing for commercial companies. · Financing for wealth structuring activities. · Financing for subscriptions to private equity programmes. · Conditional commitments. The Directive also sets out the maximum term and conditions applicable, with delegations of authority 36 CFM Indosuez Wealth Management