Société Générale / Risk report 2021 - Pillar 3 2020

2 RISK FACTORS RISK FACTORS PILLAR 3 - 2021 | SOCIETE GENERALE GROUP | 16 2.2.1.4 The Group is subject to an extensive supervisory and regulatory framework in each of the countries in which it operates and changes in this regulatory framework could have a negative effect on the Group’s businesses, financial position, costs, as well as on the financial and economic environment in which it operates. The Group applies the regulations of the jurisdictions in which it operates. French, European and U.S. regulations as well as other local regulations are concerned, given the cross-border activities of the Group. The application of existing regulations and the implementation of future regulations requires significant resources that could affect the Group’s performance. In addition, non-compliance with regulations could lead to fines, damage to the Group’s reputation, forced suspension of its operations or the withdrawal of operating licences. By way of illustration, exposures to credit and counterparty credit risks (EAD) in France, the 27-member European Union (including France) and the United States represented 47%, 67% and 12%, respectively, at 31 December 2020. Among the recent regulations that have a significant influence on the Group: following the 2008 financial crisis, the legal and regulatory p framework for activities on the financial markets (such as the European regulations and directives EMIR, MiFID 2 and MiFIR or the Volcker Regulation in the United States) have increased the Group’s obligations, notably in the areas of transparency and reporting, and have also implemented an obligation to offset some of its derivative transactions or to increase related collateral requirements. In the next two years, certain factors are still likely to degrade the environment for market activities: (i) the possible strengthening of transparency constraints and investor protection measures (review of MiFID II/MiFIR), (ii) the implementation of the fully phased-in Basel III Package (including the fundamental review of the trading book, FRTB), which may unilaterally increase requirements applicable to European banks and (iii) a potential forced relocation of clearing activities related to euro-denominated rate derivatives, which could affect the competitiveness of European actors; in the United States, the implementation of the Dodd-Frank Act has p been almost finalised. The new Securities and Exchange Commission (SEC) regulations related to security-based swap dealers will be applicable in 2021 and will constitute a significant step for the Group’s U.S. market activities; new European measures aimed at restoring banks’ balance sheets, p especially through active management of non-performing loans (NPLs), which are leading to a rise of prudential requirements and an adaptation of the Group’s strategy for managing NPLs. More generally, additional measures to define a framework of good practices for granting ( e.g. , loan origination orientations published by the European Banking Authority) and monitoring loans could also impact the Group; the strengthening of the supervisor’s requirements (through the p adoption of best practices) within the Single Supervisory Mechanism (SSM) could have an impact on the management costs and risk-weighted exposure levels of internal models; a strengthening of requirements related to internal control as well as p the Group’s rules of governance and good conduct, with a potential impact on costs; the strengthening of data quality and protection requirements and a p potential strengthening of cyber-resilience requirements in relation to the consultation on “digital operational resilience framework for financial services” initiated by the European Commission in December 2019; the implementation of the European sustainable finance regulatory p framework, with an increase in non-financial reporting obligations, enhanced inclusion of environmental and social issues in risk management activities and the potential inclusion of such risks in the supervisory review and assessment process (Supervisory Review and Evaluation Process - SREP); the strengthening of the crisis prevention and resolution regime set p out in the Bank Recovery and Resolution Directive of 15 May 2014 (BRRD), as revised, gives the Single Resolution Board (SRB) the power to initiate a resolution procedure when the point of non-viability is reached. In this context, the SRB could, in order to limit the cost to the taxpayer, force creditors and shareholders of the Group to incur losses in priority. Should the resolution mechanism be triggered, the Group could, in particular, be forced to sell certain of its activities, modify the terms and conditions of the remuneration of its debt instruments, issue new debt instruments, or be subjected to the depreciation of its debt instruments or their conversion into equity securities. Furthermore, the Group’s contribution to the annual financing of the Single Resolution Fund (SRF) is significant and will grow steadily until 2023, with 2024 being the year of the full endowment of the fund. The contribution to the banking resolution mechanisms is described in Note 7.3.2 Other provisions for risks and expenses of the 2021 Universal Registration Document. Future legal and regulatory obligations could also be imposed on the Group, such as: the ongoing implementation in France of consumer-oriented p measures affecting retail banking (limitation of banks’ fees for individuals and extension of such measures to small and medium-sized businesses, protection measures for vulnerable customers, extended liability of customer advisers on societal issues (equality between men and women, advice on energy transition, etc.)); the potential requirement (at the European level) to open more bank p accounts (savings books, investments) to third-party service providers and/or to pool customer data. The Group is also subject to complex tax rules in the countries in which it operates. Changes in applicable tax rules, uncertainty regarding the interpretation of such changes or their impact may have a negative impact on the Group’s business, financial position and costs. Moreover, as an international bank that handles transactions with US persons, denominated in US dollars, or involving US financial institutions, the Group is subject to US laws and regulations relating in particular to compliance with economic sanctions, the fight against corruption and market abuse. More generally, in the context of agreements with US and French authorities, the Group has undertaken to implement, through a dedicated programme and organisation, corrective actions to address identified deficiencies, the cost of which will be significant, and strengthen its compliance programme. In the event of a failure to comply with relevant US laws and regulations, or a breach of the Group’s commitments under these agreements, the Group could be exposed to the risk of (i) administrative sanctions, including fines, suspension of access to US markets, and even withdrawals of banking licences, (ii) criminal proceedings, and (iii) damage to its reputation. 2.2.1.5 Brexit and its impact on financial markets and the economic environment could have an adverse effect on the Group’s activities and results of operations. The British law on the withdrawal of the United Kingdom from the European Union came into force on 1 February 2020, confirming the United Kingdom’s departure from the European Union.