BPCE_REGISTRATION_DOCUMENT_2017

5 FINANCIAL REPORT

Statutory Auditors’ report on the consolidated financial statements

Valuation of financial instruments of level 2 and 3 according to IFRS 13

Risk identified and main judgements

Our response

BPCE SA group holds a substantive part of financial instruments which are recognized in the balance sheet at fair value. At December 31, 2017, financial instruments at fair value represents € 167 billion under assets and € 139.5 billion under liabilities. For the need of this valuation and in accordance to the IFRS 13 standard,financialinstrumentsare allocated,followingthe methodof determinationof fair value, to one of three fair value levels. Levels 2 and 3 gather financial instrumentsvalued using models of valuation based on significantinputs observableor unobservableon the market, depending on the case ( € 109 billion in level 2 and € 14 billion in level 3 under assets and € 116 billion in level 2 and € 4 billion in level 3 under liabilities).The valuationof financialinstrumentsat fair value lays on valuationtechniquesthat uses judgementregardingthe choice of methodologies used: determination of valuation inputs unobservable on market; ● use of internal models of valuation; ● estimates of additional adjustments of valuation, to take into ● accountsome risks suchas marketrisk, credit risk or liquidity risk. In light of the materialityof the outstandingand the judgementused to determine fair value, we deemed the financial instruments classifiedin level 2 and 3, accordingto the fair value hierarchy,to be a key audit matter. For more detail on accounting principles and fair value hierarchy of financial instruments see notes 4.1.6, 5.5.1, 5.5.2, and 5.5.3 to the consolidatedfinancialstatements.

We reviewed the internal control procedures relating to the determination, valuation and recording of complex financial instrumentsclassified at fair value in levels 2 and 3. We interviewed the Risk, Compliance and Permanent Control division and we acknowledgereportingand memos of Committeesfrom this direction (in link with our Audit team at Natixis who is the main contributorto this subject). We tested the relevant control to our audit, including those relating to: the approval and regular review by Managementof the risks of the ● valuation models; the independent verification of the valuationinputs; ● the determination of value adjustments as well as corrections ● added inthe value. We performedthis work with the assistanceof our valuationexperts, with whom we also made counter valuation work. Based on sample, our experts analyzed the relevance of the assumptions; inputs and models used to determine themain adjustments to valuation. We also analyzed the differenceson existing collateralcalls and gain or losses in case of sale of instrumentsallowing to contributeto the review of appropriateness of valuations. Finally, we examined the information relating to the valuation of financial instruments released in the consolidated financial statements.

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Registration document 2017