CFM INDOSUEZ Wealth Management - 2019 annual report

market data. The original transaction price is deemed to reflect the market value and recognition of the initial margin is deferred. The margin earned on these structured financial instruments is generally recognised in the income statement over the period during which the inputs are deemed unobservable. When market data becomes “observable,” the margin remaining to be recognised is immediately taken to income. The methodologies and valuation models for financial instruments presented in Level 2 and Level 3 incorporate all the factors that market participants use to calculate a price. They must first be validated by an independent audit. In particular, the calculation of the fair values of these instruments takes into account liquidity risk and counterparty risk. Offsetting financial assets and liabilities In accordance with IAS 32, CFM Indosuez Wealth Group offsets a financial asset and a financial liability and presents a net balance if and only if it has a legally enforceable right to offset the amounts recognised and intends to settle the net amount or realise the asset and realise the liability simultaneously. Derivatives and repurchase agreements traded with clearing houses whose operating principles meet the two criteria established by IAS 32 are offset in the balance sheet. Net gains or losses on financial instruments Net gains or losses on financial instruments at fair value through profit or loss For financial instruments recognised at fair value through profit or loss, this item includes the following items of income: • Dividends and other income from equities and other variable income securities classified as financial assets at fair value through profit or loss; • Changes in the fair value of financial assets or financial liabilities measured at fair value through profit or loss; • Capital gains and losses realised on financial assets at fair value through profit or loss; • Changes in fair value and income from the sale or termination of derivative instruments that are not subject to a fair value hedging or cash flow hedging relationship. This item also includes the ineffective portion of hedging transactions. Net gains or losses on financial instruments at fair value through other comprehensive income For financial assets recognised at fair value through other comprehensive income, this item includes the following items of income: • Dividends from equity instruments classified as financial assets at fair value through other comprehensive income not recyclable to income; • Capital gains and losses and income related to the termination of hedging relationships on debt instruments classified as financial assets at fair value through other comprehensive income recyclable to income; • Income from the sale or termination of fair value hedges of financial assets measured at fair value through other comprehensive income when the hedged item is sold. Financing commitments and financial guarantee commitments given Financing commitments that are not classified as assets measured at fair value through profit or loss or that are not considered to be derivative instruments within the meaning of IFRS 9 are not included in the balance sheet. However, they are subject to provisions in accordance with IFRS 9. A financial guarantee arrangement is a contract that requires the issuer to make specified payments to reimburse the holder for a loss that it sustains as a result of the default of a specified debtor who fails to make a payment when due according to the initial or amended conditions of a debt instrument. Financial guarantee contracts are initially measured at fair value and subsequently at the one of the following, whichever is greater: • the amount of the impairment for credit losses determined in accordance with IFRS 9, or • the amount initially recognised less, if any, accumulated income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers. Provisions (IAS 37 and 19) CFM Indosuez Wealth Group identifies legal or implicit obligations resulting from a past event, in cases in which it is likely that an outflow of resources will be required to settle them, where the timing or amount are uncertain but of which a reliable estimate can be made. These estimates may be updated if the impact is significant. In respect of non-credit risk obligations, CFM Indosuez Wealth Group has set up provisions that cover: • employee benefits; • performance risk on off-balance sheet commitments; • litigation and liability guarantees. Commitments are established taking into account, in particular: • the modelled behaviour of the subscribers, using assumptions of changes in these behaviours, based on historical observations and which may not reflect actual future changes; • an estimate of the amount and duration of future borrowings based on historical long-term observations; • the curve of observable rates on the market and reasonably anticipated changes in such rates. The amount of the following provisions may also be estimated: • provisions for legal risks resulting from Management’s best assessment, taking into account the information in its possession at the end of the financial year. Detailed information is provided in Note 6.12 “Provisions”. Employee benefits (IAS 19) In accordance with IAS 19, employee benefits fall into four categories: • short-term benefits, such as wages, social security contributions, holidays, incentive bonuses, profit-sharing, and bonuses, are those expected to be paid within 12 months of the year in which the services were rendered; • retirement benefits, which are themselves classified into the two categories described below: defined benefit plans and defined contribution plans; • long-term benefits (long service awards, bonuses and compensation payable twelve months or more after the fiscal year); • termination benefits. Post-employment benefits Defined benefit plans At each closing date, CFM Indosuez Wealth Group determines its retirement and similar benefits as well as all the employee benefits granted in respect of defined benefit plans. In accordance with IAS 19, these commitments are measured based 67 Annual Financial Statements 2019