Scoring in the SREP
Competent authorities should assign risk and viability scores to summarise the outcomes of the assessment of various risk categories and elements in the SREP framework.
In the assessment of the individual risk categories and SREP elements, competent authorities should use a range of scores – 1 (low risk), 2 (medium-low risk), 3 (medium-high risk), and 4 (high risk) – reflecting the supervisory view based on the relevant scoring tables in each element-specific title. Competent authorities should use the accompanying ‘considerations’ provided in these tables for guidance to support supervisory judgement (i.e. it is not necessary for the institution to fulfil all the ‘considerations’ linked to a score of ‘1’ to achieve a score of ’1’), and/or further develop them or add additional considerations. Competent authorities should assign a score of ‘4’ to reflect the worst possible assessment (i.e. even if the institution’s position is worse than that envisaged by the ‘considerations’ for a score of ‘4’, a score of ‘4’ should still be assigned).
In their implementation of the guidelines, competent authorities may introduce more granular scoring for their internal purposes, such as planning of resources, provided that the overall scoring framework set out in these guidelines is respected.
Competent authorities should ensure that all scores are regularly reviewed, at least with the frequency defined in Section 2.4 and without undue delay on the basis of material new findings or developments.
2.2.1Risk scores
Competent authorities should assign risk scores to individual risks to capital in accordance with the criteria specified in Title 6, and scores to risks to liquidity and funding in accordance with the criteria specified in Title 8. 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 predominantly through an assessment of inherent risk, but they should also reflect considerations about risk management and controls. In particular, the adequacy of management and controls may increase or – in some cases – reduce the risk of significant prudential impact (i.e. considerations relating to inherent risk may under- or overestimate the level of risk depending on the adequacy of management and controls). The assessment of inherent risk and the adequacy of management and controls should be made with reference to the considerations specified in Tables 4 to 7 and 9 and 10.
In implementing these guidelines, competent authorities may use different methods to decide on individual risk scores. Inherent risk levels and the quality of risk management and controls may be scored separately (resulting in an intermediate and final score) or in aggregate. Competent authorities may also introduce aggregation methodologies for aggregating individual risks to capital and liquidity and funding scores.
2.2.2Viability scores including an overall SREP score
Competent authorities should separately assign scores to summarise the level of risk posed to the viability of the institution based on the outcomes of the assessment of the four SREP elements:
For capital adequacy and liquidity adequacy, these scores represent the supervisory view of the capacity of the institution’s capital and liquidity resources to mitigate/cover individual 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.
Competent authorities should ensure that the scoring of the business model, internal governance and institution-wide controls, capital adequacy, liquidity adequacy and the overall SREP score achieves the following objectives:
helping with the prioritisation and planning of supervisory resources and the setting of priorities in the supervisory examination programme (SEP).
Competent authorities should ensure that the overall SREP score assigned on the basis of the aggregate view of the threats from the four SREP elements 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 Directive2014/59/EU, also having regard to the EBA Guidelines on ‘failing or likely to fail’(11).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.