Instruction No. 2010-I-07 on the Authorization Application File for Accounting for the Effects of Financial Collateral under Article 5 III of Regulation No. 93-05

PRUDENTIAL CONTROL AUTHORITY Instruction No. 2010-I-07 Regarding the authorization application file for the accounting of the effects of financial collateral in the approach referred to in III of Article 5 of Regulation No. 93-05 on the control of large exposures

The Prudential Control Authority, Having regard to the Monetary and Financial Code, particularly Articles L. 511-41 and L. 612-24; Having regard to Regulation No. 93-05 of December 21, 1993, as amended, of the Banking and Financial Regulations Committee on the control of large exposures; Decides:

Article 1 This Instruction applies to institutions subject to the aforementioned Regulation that request authorization from the Prudential Control Authority to apply the approach referred to in III of Article 5 to account for the effect of their financial collateral in reducing risks, hereinafter referred to as "subject institutions."

Article 2 Subject institutions shall transmit an authorization application file, written in French in two copies, to the General Secretariat of the Prudential Control Authority at the following address: General Secretariat of the Prudential Control Authority 61, rue Taitbout 75436 Paris cedex 09 and in electronic form to the address sai@acp.banque-france.fr

The authorization application file shall be accompanied by a letter signed by one of the responsible managers of the institution as defined in Article L. 511-13 of the Monetary and Financial Code. The letter shall specify the desired implementation date of the approach referred to in III of Article 5 of the aforementioned Regulation No. 93-05 for the accounting of the effects of financial collateral within the framework of large exposure regulation, as well as the institution's commitment attesting that the documents and information provided present an accurate and faithful summary of the institution's actual situation and omit no significant facts.

Instruction No. 2010-I-07 regarding the authorization application file for the accounting of the effects of financial collateral in the approach referred to in III of Article 5 of Regulation No. 93-05 on the control of large exposures Prudential Control Authority 2

Article 3 The authorization application file shall include all elements mentioned in the Annex. The authorization file may be supplemented by any other document that the subject institution considers useful for the assessment by the Prudential Control Authority. The list appearing in the Annex does not prejudice other documents that may be requested by the General Secretariat of the Prudential Control Authority.

Article 4 When the authorization application file is incomplete, its processing shall be suspended until receipt of the missing elements.

Article 5 This Instruction shall enter into force on December 31, 2010. Paris, December 13, 2010 The President of the Prudential Control Authority, [Jean-Paul REDOUIN]

Instruction No. 2010-I-07 regarding the authorization application file for the accounting of the effects of financial collateral in the approach referred to in III of Article 5 of Regulation No. 93-05 on the control of large exposures Prudential Control Authority 3

Annex List of documents of the authorization application file for the accounting of the effects of financial collateral in the approach referred to in III of Article 5 of Regulation No. 93-05 on the control of large exposures

• A description of the scope of application of the system: – entities of the institution concerned; – categories of exposure concerned within the meaning of Articles 40-1 to 43 of the Decree of February 20, 2007, on the capital requirements applicable to credit institutions and investment firms.

• A description of: – the financial collateral covered in the "advanced" internal ratings-based credit approach for solvency that will be retained in the approach referred to in III of Article 5; – the information systems generating the data used and the arrangements ensuring the reliability of said data; – of Regulation No. 93-05, in "large exposures" (with particular regard to the procedures for verifying the eligibility of these collateral); – the internal methodology for the valuation of financial collateral (particularly the calculation of volatility adjustments according to the internal models-based approach); – the methodology enabling the institution to isolate the effects of financial collateral in the application of the approach referred to in III of Article 5; – the monitoring methodology of the performance of the models used for the valuation of financial collateral, as well as the reports of "backtesting" exercises for this specific scope. – of Regulation No. 93-05, other aspects related to losses upon default;

• A comparison of the large exposure declaration (GRAN_RISK table) submitted to the General Secretariat of the Prudential Control Authority at the last reporting date preceding the authorization request with that resulting from the approach referred to in III of Article 5 of Regulation No. 93-05, at the same closing date.

• An internal validation report of the system for accounting for the effects of financial collateral in the approach referred to in III of Article 5 of Regulation No. 93-05.