NATIXIS - 2018 Registration document and annual financial report

5 FINANCIAL DATA

Statutory Auditors’ report on the parent company financial statements

Valuation of financial instruments not quoted on an active market

Risk identified and main judgments

Our audit approach

As part of its Corporate & Investment Banking activity, Natixis S.A. holds financial instruments that are marked-to-market in its balance sheet, including a significant portion of instruments that are not quoted on an active market. The determination of the market value of these financial instruments is based on valuation techniques that include a significant amount of judgment in the choice of methodologies and data used: use of adequate internal valuation models; a determination of valuation inputs unobservable on the market; a estimation of additional valuation adjustments, to reflect a certain market, counterparty or liquidity risks. We deemed the valuation of financial instruments not quoted on an active market, to be a key audit matter due to: the material nature of the exposures and the use of judgment a in determining their valuation; specific valuation adjustments recognized by Natixis in 2018 on a certain products marketed in Asia where the business model used led to the introduction of a hedging strategy that proved to be inadequate in the market conditions in 2018. Financial instruments not quoted on an active market are recognized within securities held for sale, securities held for trading and securities held for investment, which represented assets of €39.7 billion at December 31, 2018. Please refer to paragraph 2 of Note 1 and to Notes 2, 5, 26 and 27 to the parent company financial statements for more details.

We examined the internal control procedures and systems for the identification, valuation and accounting of financial instruments not quoted on an active market. We tested the relevant control to our audit, including those relating to: the validation and periodic review, by the Risk division, of a valuation models; the independent verification of valuation inputs; a the determination of the main valuation adjustments, as well a as the value adjustments made. We carried out these checks with the assistance of our valuation experts, with whom we also carried out independent valuations by examining, on a sample basis, the assumptions, methodologies and models used to estimate the valuation. For 2018, this work focused on the valuation adjustments recognized by Natixis on certain products marketed in Asia. We also examined, on a sample basis, any variances in margin calls with Natixis' market counterparties, which helped us assess the appropriateness of the valuations.

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Natixis Registration Document 2018