General considerations
This title specifies criteria for the assessment of the business model and strategy of the institution. The purpose of this assessment by competent authorities is to achieve a comprehensive understanding – both in current and forward-looking perspectives – of the institution’s operations, identify significant existing or potential vulnerabilities which are most likely to have a material impact on the institution, and assess the overall soundness of its business model and strategy. Following this assessment, competent authorities should determine:
the viability of the institution’s current business model, measured by its ability to generate acceptable returns over the next 12 months;
the sustainability of the institution’s strategy, based on its ability to generate acceptable returns over a forward-looking period of at least three years, as derived from its strategic plans and financial projections.
Competent authorities should use the outcome of the BMA to support the assessment of all other elements of the SREP. Competent authorities may assess specific aspects of the BMA, in particular the quantitative assessment of the business model, as part of the assessment of other SREP elements (e.g. understanding the funding structure can be part of the risks to liquidity assessment).
Competent authorities should take into account environmental, social and governance (ESG) risks, giving priority to environmental transition and physical risks, when performing the BMA, with a view to assessing the strategic and prudential implications of these risks for the business model of the institution in the short, medium and long term.
Competent authorities should also use the business model analysis to assess prudential implications of ML/TF risks, linked to the business model of the institution. In this respect, competent authorities should use the input received from AML/CFT supervisors to complement their findings from ongoing supervision and evaluate whether they give rise to prudential concerns related to ML/TF risk. Where the assessment indicates the business model of the institution gives rise to prudential concerns related to ML/TF risk, competent authorities should share the outcome of the prudential assessment of the business model with the AML/CFT supervisor(25).
To conduct the BMA, competent authorities should use at least the following sources of quantitative and qualitative information:
institution’s strategic plan(s) with current-year and forward-looking forecasts, and underlying economic assumptions;
financial reporting (e.g. profit and loss - P&L, balance-sheet disclosures);
regulatory reporting (COREP, FINREP and credit register, where available);
internal reporting (management information, including – where available – contribution to the profitability by business lines, capital planning, liquidity reporting, operational resilience, internal risk reports);
recovery plans;
resolution plans, including the work and outcome of resolvability assessment provided by the resolution authority in accordance with Article 14 of Directive 2014/59/EU;
institution’s plan to address ESG risks, to be prepared in accordance with Article 76(2) of Directive 2013/36/EU;
third-party reports (e.g. audit reports, reports by equity/credit analysts);
other relevant macroprudential or financial stabilities studies/surveys (e.g. from the International Monetary Fund - IMF, macroprudential authorities and institutions, European institutions).