Société Générale / Risk report 2021 - Pillar 3 2020

8 SECURITISATION STRUCTURED ENTITIES’ SPECIFIC CASE PILLAR 3 - 2021 | SOCIETE GENERALE GROUP | 158 STRUCTURED ENTITIES’ SPECIFIC CASE 8.3 A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. When assessing the existence of a control over a structured entity, all facts and circumstances shall be considered, among which: the purpose and design of the entity; p the structuring of the entity (especially, the power to direct the p relevant activities of the entity); risks to which the entity is exposed by way of its design and the p Group’s exposure to some or all of these risks; potential returns and benefits for the Group. p Unconsolidated structured entities are those that are not exclusively controlled by the Group. Within the framework of the consolidation of structured entities that are controlled by the Group, the shares of those entities that are not held by the Group are recognised under “Debt” in the balance sheet. When customer loans are securitised and partially sold to external investors, the entities carrying the loans are consolidated if the Group retains control and remains exposed to the majority of the risks and benefits associated with these loans. MANAGEMENT OF SECURITISATION RISKS 8.4 The management of risks associated with securitisation operations follows the rules established by the Group depending on whether these assets are recorded in the banking book (credit and counterparty credit risks) or in the trading book (market risk and counterparty credit risk). The securitisation risk is monitored by the Client Relations and Financing and Advisory Solutions department (Global Banking & Advisory - GLBA) in LoD1 and supervised in the credit risk management system by the “Corporate and Investment Banking” division (CIB) of the Risks department in LoD2. ROLE OF GLOBAL BANKING AND ADVISORY (GLBA) As a rule, only the Asset-Backed Products division of GLBA has the mandate to deal with transactions generating securitisation risk. These operations consist of: structuring and/or primary distribution of ABS (Asset-Backed p Securities), which can take the form of RMBS (Residential Mortgage-Backed Securities), CMBS (Commercial Mortgage-Backed Securities) and CLOs (Collateralised Loan Obligations) , structured or co-arranged by Societe Generale, for the benefit of issuers (companies and specialised financial companies) also called “public securitisation”. These transactions do not generate any securitisation risk for the Group if no exposure is retained by Societe Generale; financing of customer needs, via commercial paper backed by assets p issued by Societe Generale conduits or, marginally, on the balance sheet, also called “private securitisation”. These activities generate credit risk for Societe Generale and are overseen by the “Corporate and Investment Banking” (CIB) division of the Risk Department; securitised products are also used as underlying on the secondary p market in collateralised financing and trading transactions. These transactions generate both credit risk and market risk for the Group and are overseen by the “Corporate and Investment Banking” and “Risks on Market Activities and ALM” divisions; operations can also be carried out on own account by the Finance p Department, as part of its mission to manage the Group’s scarce resources. GLBA can then act as advice on structuring and or placement under mandate of the Finance Department. ROLE OF THE RISK DEPARTMENT The Risk Department, within the framework of various CORISQs chaired by General Management and in compliance with the risk appetite of Societe Generale group, formalises, jointly with the “Global Banking and Advisory” department, the Group’s risk appetite with regard to securitisation activities. These frameworks are established by type of product (primary securitisation, sale of securitisation products in secondary, collateralised financing, etc.) and aim to define the acceptable level of risk with regard to the Group's strategic objectives via limits and guidelines for granting credit. The role and responsibilities of the Risk Department are divided according to the main risk (credit or market). The Risk Department contributes to the definition of risk policies, taking into account the objectives of the business lines and the corresponding risk issues. The Risk Department defines or validates the methods and procedures for analysing, measuring, approving and monitoring risks and, ultimately, ensures that they are in line with the needs of the businesses. The Risk Department validates the operations and certain limits, the others being presented in CORISQ. In the same way as for all structured finance transactions, the Business Unit has no delegation of signature for securitisation transactions. Any securitisation transaction must be validated by the Risk Department.