FINANCIAL INSTRUMENTS (IFRS 9, IFRS 13, IAS 32 AND 39) Definitions IAS 32 defines a financial instrument as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity, meaning any contract representing contractual rights or obligations to receive or pay cash or other financial assets. Financial assets and liabilities are treated in the financial statements in accordance with IFRS 9 as adopted by the European Union. Derivatives are financial assets or liabilities whose value changes according to that of an underlying (provided that, in the case of a non-financial variable, the underlying is not specific to one of the parties to the contract), which require little or no initial investment and which are settled at a future date. IFRS 9 defines the principles for classification and measurement of financial instruments, impairment/ provisioning of credit risk and hedge accounting, excluding macro-hedging transactions. However, it should be noted that CFM Indosuez Wealth has made use of the option not to apply the general hedge accounting model under IFRS 9. All hedging relationships consequently remain within the scope of IAS 39, pending future provisions in regard to macro-hedging. So-called '"green" or "ESG" financial assets and "green bond" financial liabilities include a variety of instruments, in particular loans or borrowings to finance environmental projects or the ecological transition. It should be noted that not all financial instruments with these characteristics necessarily offer returns that vary depending on the achievement of ESG targets. This terminology is subject to change in line with European regulations on sustainable finance. These instruments are accounted for in accordance with IFRS 9 and the principles set out below. In particular, loans where the indexation of the remuneration of the ESG criterion does not introduce leverage or is considered immaterial in terms of the variability of the instrument's cash flows are not considered to fail the SPPI test (analysis of contract clauses) on the basis of this criterion alone. Conventions for valuing financial assets and liabilities Initial valuation For their initial recognition, financial assets and liabilities are measured at fair value as defined by IFRS 13. Fair value, as defined by IFRS 13, corresponds to the price that would be received on the sale of an asset or paid to transfer a liability in an ordinary transaction between market participants, on the main or most advantageous market at the valuation date. Subsequent valuation After initial recognition, financial assets and liabilities are measured according to their classification either at amortised cost, using the effective interest rate method (EIR) for debt instruments, or at fair value as defined by IFRS 13. Derivatives are always valued at fair value. The effective interest rate (EIR) is the rate that discounts expected future cash payments or receipts through the expected life of the financial instrument to the net book value of the financial asset or liability. Amortised cost corresponds to the amount at which the financial asset or liability is valued during its initial recognition, including transaction costs directly attributable to its acquisition or issue, less repayments of principal, increased or reduced by cumulative amortisation calculated by the effective interest rate method (EIR) on any difference (discount or premium) between the initial amount and the amount at maturity. In the case of a financial asset measured at amortised cost or fair value through recycled equity, the amount may be adjusted if necessary for impairment (see "Provisions for credit risk"). Financial assets Classification and valuation of financial assets Non-derivative financial assets (debt or equity instruments) are classified on the balance sheet in accounting categories that determine their accounting treatment and their subsequent valuation method. The criteria for classifying and evaluating financial assets depends on the nature of the financial asset, whether it is qualified as: - debt instruments (i.e. loans and fixed or determinable income securities); or - an equity instrument (e.g. shares). These financial assets are classified in one of three categories: - financial assets at fair value through profit or loss; - financial assets at amortised cost (debt instruments only); - financial assets at fair value through equity (recyclable for debt instruments, non-recyclable for equity instruments). CFM Indosuez Wealth Management 80
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