Business model viability and sustainability
Competent authorities should assess the resilience of the institution’s business model to external shocks and its adaptability to structural changes in terms of its capacity to absorb them and adapt to exogenous factors that could threaten business and strategic objectives. Areas for analysis by competent authorities should include:
climate-related and other environmental risks, by assessing their impact on the institution’s current and future business environment and business strategy, the institution’s exposure to material transition and physical risks, as well as the development and implementation of a plan to monitor and address the financial risks stemming from ESG factors - including those arising from the process of transition towards regulatory objectives, in particular climate-related objectives applicable in the jurisdiction(s) where the institution operates;
digitalisation, by assessing the use and adoption level of new technologies and impact on the institution’s business strategy and business plan, execution capabilities and cost control, as well as revenue generation;
operational resilience, by reviewing the institution’s operational resilience approach and its consideration to the business strategy by the management body;
geopolitical risks, by assessing the source of geopolitical uncertainties and its inclusion in the business strategy, as well as their financial impact on the institution’s current and future profitability, while also taking into account the institution’s capacity to withstand such uncertainties, for instance by means of its geographical and business profile diversification;
crypto-asset activities, if applicable, by assessing the institution’s provision of crypto-asset services and any other activities related to crypto-assets.
Based on the performed analysis, competent authorities should form, or update, their view on the following elements:
key vulnerabilities to which the institution’s business model and strategy expose it or may expose it, such as excessive concentrations or risk-taking, poor strategic steering of profitability and execution capabilities;
viability of the institution’s current business model, as defined in paragraph 56, given its quantitative performance, risk appetite, funding structure, key success drivers and dependencies and business environment;
sustainability of the institution’s strategy, as defined in paragraph 56, based on the plausibility of its strategic plan and financial forecasts, and given the supervisory assessment of the projected financial performance, overall strategy, level of operational resilience and the execution capabilities. Competent authorities should also consider the institution’s capacity to ensure its medium- to long-term resilience to environmental risks by taking into account long-term horizons of at least ten years, including by reviewing the environmental business model resilience analyses conducted by the institution in compliance with the EBA Guidelines on environmental scenario analysis(26);