CFM INDOSUEZ Wealth Management - 2019 annual report

based on the level of risk, the length of the commitment and its profile. The Directive and local policies and procedures define the monitoring rules and the information to be provided to the different stakeholders. As most of our exposures are backed by collateral, capital requirements are limited and the risk-weighted assets allocated to credit risk are lower than the risk appetite set for the bank’s activity. Foreign exchange risk: Foreign exchange risk limits are reviewed annually by the CA CIB Market Risk Committee, which includes the Indosuez Wealth Management and CFM Indosuez Wealth Management RPC functions. The calculation of open positions (equivalent in euros) takes into account all the Bank’s foreign exchange positions (spot and forward exposures). CFM Indosuez Wealth Management’s foreign exchange risk is hedged by the Cash Management department each day. Open foreign exchange positions held on the Bank’s own account are only generated by client-related activities. CFM Indosuez Wealth Management does not hold speculative positions. However, as the group-wide IT solution, S2i, requires invoices to be paid in Swiss francs, a foreign exchange risk may arise when the invoice is paid. This exposure is hedged via the regular purchase of Swiss francs, in line with requirements. This foreign exchange hedging activity and the corresponding trades are presented to the ALM Committee each quarter. Interest rate risk: Interest rate risk on all of the Bank’s proprietary portfolios is managed with a two-level system overseen by CA CIB’s RPC function: · Sensitivity limits (daily monitoring). · A Value at Risk (VaR) limit. Sensitivity limits are set: · By maturity (< 1 year, 1-3 years, 3-5 years, > 5 years) and · By currency (EUR, USD, GBP, etc.). These limits measure the maximum loss that would arise from a 0.01% increase in interest rates applied to all fixed and variable rate products managed by CFM Indosuez Wealth Management. Value at Risk is calculated using historical fluctuations over a sliding year and shows the loss that could arise with a probability of 99%. The calculation used is 1-year / 1-day 99% VaR. This regulatory indicator is calculated directly by CA CIB’s software applications and approved by CFM Indosuez Wealth Management’s Market Risk unit. Interest rate risk sensitivity is measured by the Group’s tools, GAP and Global View, which compare the following transactions with authorised limits: · On and off-balance sheet transactions (loans and borrowings, term deposits, securities purchased and issued, lender and borrower swaps). · Fixed and variable rate transactions. · Transactions involving the Bank’s portfolios. Liquidity and funding risk: The liquidity and funding risk management policy applies to the parent company CFM Indosuez Wealth Management according to the standardised approach, without taking into account the subsidiaries, which are not supervised by the ACPR (French Prudential Supervision and Resolution Authority) and whose size and activities are deemed insignificant with regard to the risks under consideration. Matters relating to cash management (liquidity, funding, limits, etc.) are discussed quarterly in local Cash Management Committee meetings. Additional committees may be organised as required. Liquidity risk management is monitored through two regulatory ratios: the Liquidity Coverage Ratio (LCR) for liquidity risk for up to 30 days and the Net Stable Funding Ratio (NSFR) for medium- and long-term liquidity risk. These two ratios are derived from the Basel III agreements with an overall internal limit of 100%. They are presented to the Committee. · LCR: the end-of-month ratios reported to the Banque de France were above 100% over 2019. In accordance with the requirements of the Basel Committee on Banking Supervision, the high quality liquid assets (HQLA) portfolio provides a liquidity reserve that can be drawn on extremely quickly, even in the event of a major crisis, to allow the Bank to honour its commitments for at least 30 days, which is the basis of the LCR. · NSFR: As CFM Indosuez Wealth Management is not a liquidity centre, there are currently no limits on medium to long term (MLT) liquidity. In addition, CFM Indosuez Wealth Management (like other Wealth Management entities) is a net provider of MLT liquidity (its balance sheet shows surplus deposits). 37 2019 Activity Report