Summary of findings, scoring and supervisory measures
Based on the assessment of the viability and sustainability, and of any potential risks and vulnerabilities to the institution, competent authorities should form a view on the institution’s business model. This view should be reflected in a summary of findings, accompanied by a viability score based on the considerations specified in table 2.
Table 2. Supervisory considerations for assigning a business model score
Supervisory view | Conside rations |
The business model and strategy pose a low level of risk to the viability of the institution. | • The institution has a strong competitive position in its chosen markets and a strategy likely to reinforce this. • The institution generates strong and stable returns which are commensurate to the risk it takes on, given its risk appetite and funding structure and that are not driven by excessive risk-taking, or reliance on an unrealistic strategy. |
Score
1
Supervisory view | Conside rations |
• There are no material asset concentrations or unsustainable concentrated sources of income. • The institution has financial forecasts drawn up based on plausible assumptions about the future business environment. • The institution addresses strategic implications of material ESG risks, in particular environmental transition and physical risks, for its business model in the short, medium and long term through a robust transition planning process. • Strategic plans are appropriate given the current business model and management execution capabilities. | |
The business model and strategy pose a medium-low level of risk to the viability of the institution. | • The institution faces competitive pressure on its products/services in one or more key markets. There is some doubt about its strategy to address the situation. • The institution generates average returns compared to peers and/or historic performance which are broadly commensurate to the risk it takes on, given its risk appetite and funding structure. • There are some asset concentrations or concentrated sources of income. • The institution has financial forecasts drawn up based on optimistic assumptions about the future business environment. • The institution broadly addresses strategic implications of material ESG risks, in particular environmental transition and physical risks, for its business model through an overall reasonable yet not fully robust transition planning process. • Strategic plans are reasonable given the current business model and management execution capabilities, but not without risk. |
The business model and strategy pose a medium-high level of risk to the viability of the institution. | • The institution has a weak competitive position for its products/services in its chosen markets and may have few business lines with good prospects. The institution’s market share may be declining significantly. There are doubts about its strategy to address the situation. • The institution generates returns that are often weak or unstable or not commensurate to the risk it takes given its risk appetite or funding structure and that raise supervisory concerns. • There are material asset concentrations or concentrated sources of income. • The institution has financial forecasts drawn up based on overly optimistic assumptions about the future business environment. • The institution addresses strategic implications of material ESG risks, in particular environmental transition and physical risks, for its business model only partially. Its transition planning process shows some weaknesses and/or deficiencies. • Strategic plans may not be plausible given the current business model and management execution capabilities. |
The business model and strategy pose a high level of risk to the viability of the institution | • The institution has a very poor competitive position for its products/services in its chosen markets and participates in business lines with very weak prospects. Strategic plans are very unlikely to address the situation. • The institution generates very weak and highly unstable returns or relies on an unacceptable risk appetite or funding structure to generate appropriate returns. |
Score
2
3
4
Supervisory view | Conside rations |
• The institution has extreme asset concentrations or unsustainable concentrated sources of income. • The institution has financial forecasts drawn up based on very unrealistic assumptions about the future business environment. • The institution is exposed to material ESG risks, in particular environmental transition and physical risks, and does not address strategic implications for its business model. Its transition planning process is inconsistent with the broader business strategy. Its transition planning process shows severe weaknesses and/or deficiencies. • Strategic plans are not plausible given the current business model and management execution capabilities. |
Score
The table below presents a non-exhaustive list of supervisory measures that competent authorities may take in case of identified deficiencies in the institution’s business model. Competent authorities should decide on the type of the supervisory measure based on its effectiveness to the specific identified deficiency.
Competent authorities may apply additional supervisory measures (including quantitative measures in accordance with Article 104(1)(a) of the Directive 2013/36/EU) or a combination of them if these are deemed more appropriate to address the identified deficiencies.
Table 3. Potential and non-exhaustive list of supervisory measures stemming from the BMA
Potential supervisory measures for competent authorities in accordance with Article 104(1)(b), (d), (e), (f), (m), (n) of Directive 2013/36/EU – Competent authorities may require the institution to: A. adjust the financial plan assumed in the strategy, if it is not supported by internal capital planning or credible assumptions; B. make changes to organisational structures, reinforcement of risk management and control functions and arrangements to support the implementation of the business model or strategy; C. make changes to and reinforcement of IT systems to support the implementation of the business model or strategy; D. make changes to the business model or strategy; E. reduce the risk inherent in the products they originate/distribute, including requiring changes to the risks inherent in certain product offerings; and/or requiring improvements to the governance and control arrangements for product development and maintenance; D. reduce the risk inherent in its systems, including requiring improvements to the systems, or increasing the level of investment or speeding-up the implementation of new systems; and/or requiring improvements to the governance and control arrangements for system development and maintenance; G. reduce the risk inherent in their activities, including outsourced activities and requiring changes to or reduction of certain activities with a view to reducing their inherent risk; and/or requiring improvements to governance and control arrangements and oversight of outsourced activities; H. reduce ESG risks, in particular environmental risks, through adjustments to its business strategy, for which a reinforcement of the targets, measures, and actions included in the institution’s plan to be prepared in accordance with Article 76(2) of Directive 2013/36/EU could be requested.