Scoring in the SREP
Competent authorities should apply a consistent scoring system to help facilitate communication between competent authorities and colleges of supervisors, foster comparability and a level playing field across institutions, and prioritise supervisory resources and measures in the assessment of the SREP elements. They should summarise the outcomes of their assessments by assigning risk scores, SREP element scores and an overall SREP score.
When assigning risk scores, SREP elements scores and the overall SREP score, competent authorities should refer to the considerations outlined in the tables at the end of each relevant section and title of these guidelines, alongside the application of supervisory judgment. While these considerations serve as a baseline for assigning scores, they should not be interpreted as a mechanical checklist to be completed for each element, nor should they be seen as establishing a hierarchy of importance among the elements. Instead, they are intended to guide competent authorities in assigning scores by considering the interplay and relevance of the different elements within the specific dimension of the institution being assessed.
The risk scores aim to capture the likelihood that the risks to capital, liquidity and funding will have a significant impact on the institution. The SREP element scores and the overall SREP score indicate the magnitude of risks to the institution’s viability; in particular the overall SREP score should reflect the supervisory view of the overall viability of the institution as specified in Title 9.
Figure 1. Overview of the scoring framework
The scores are: 1 (low risk), 2 (medium-low risk), 3 (medium-high risk), and 4 (high risk – this represents the worst possible assessment). An additional score of ‘F’ is available only for the overall SREP score, as explained in paragraph 38. Competent authorities may introduce more granular scoring for their internal purposes, such as planning of resources, provided the overall scoring framework set out in these guidelines is respected.
Competent authorities should review the scores upon completion of the SREP assessments with the minimum frequency set out in the SREP engagement model in section 2.4. The scores should also be reviewed without undue delay on the basis of material new findings or developments.
2.2.1Risk scores
Risk scores are assigned to summarise risks to capital (as specified in Title 6). These scores represent the likelihood that a risk will have a significant prudential impact on the institution (e.g. potential loss), after considering the quality of risk controls to mitigate this impact (i.e. residual risk), but before consideration of the institution’s ability to mitigate the risk through available capital or liquidity resources.
Competent authorities should determine the risk score through an assessment of an institution’s inherent risk level, while duly considering the adequacy of the institution’s risk management and controls framework. In particular, an adequate risk management and controls framework may mitigate the prudential impact of a specific risk, while a weak framework may amplify the prudential impact. The assessment of inherent risk and the adequacy of management and controls should be made with reference to the considerations specified in table 6 for credit and counterparty risk, in table 8 for market risk, in table 10 for operational risk, in table 12 for interest rate and credit spread risk in the banking book (IRRBB and CSRBB), in table 17 for liquidity and funding.
When assessing risks to capital, competent authorities should also consider relevant sub-categories (e.g. concentration risk or country risk as part of the credit and counterparty risk assessment, as set out in Title 6). Depending on the materiality of any of these subcategories to a particular institution, competent authorities may decide to assess and score them individually.
Competent authorities may use different methods to apply the risk scores, they could score ‘risk’ and ‘risk management and controls’ separately (resulting in an intermediate and final score) or score them together. Competent authorities may also aggregate all the risks to capital into an aggregate score.
2.2.2SREP element scores and overall SREP score
At the end of the overall SREP assessment, competent authorities should form a comprehensive overview of the risk profile and viability of the institution based on the four SREP elements:
Capital adequacy and liquidity and funding adequacy represent the supervisory view of the capacity of the institution’s capital and liquidity resources to mitigate/cover risks to capital and liquidity and funding, as set out in Titles 6 and 8, and/or other elements for which additional own funds have been determined as set out in Title 7.
The final score is an overall SREP score. This incorporates the four SREP element scores above and supervisory judgement. Competent authorities should ensure that the overall SREP score provides an indication of the institution’s overall viability, including whether the institution is ‘failing or likely to fail’ within the meaning of Article 32 of Directive 2014/59/EU, and having regard to the EBA Guidelines on ‘failing or likely to fail’(17). When the outcome of the overall SREP assessment suggests that an institution can be considered to be ‘failing or likely to fail’, competent authorities should apply a score of ‘F’ and follow the process of engaging with resolution authorities as specified in Article 32 of Directive 2014/59/EU.
Competent authorities should ensure that the SREP element scores and the overall SREP score: