2.2 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 judgment (i.e. it is not necessary for the investment firm 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 investment firm’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 based on material new findings or developments.

2.2.1 Risk 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 investment firm, after considering the quality of risk controls to mitigate this impact (i.e. residual risk), but before consideration of the investment firm’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 reduce or – in some cases – increase the risk of significant prudential impact (i.e. considerations relating to inherent risk may underestimate or overestimate the level of risk depending on the adequacy of management and controls).

In implementing these guidelines, competent authorities may evaluate inherent risk levels and the quality of risk management and controls separately (resulting in intermediate and net scores) or in aggregate (resulting in net risk scores only). Competent authorities may also introduce aggregation methodologies for aggregating individual risks to capital and liquidity and funding scores.

2.2.2 Viability scores

Competent authorities should separately assign scores to summarise the level of risk posed to the viability of the investment firm based on the outcomes of the assessment of the four SREP elements:

• a. business model and strategy, in accordance with the criteria specified in Title 4;
• b. internal governance and firm-wide controls, in accordance with the criteria specified in Title 5;
• c. capital adequacy, in accordance with the criteria specified in Title 7; and
• d. liquidity adequacy, in accordance with the criteria specified in Title 9.

For capital adequacy and liquidity adequacy, these scores represent the supervisory view of the capacity of the investment firm’s capital and liquidity resources to mitigate/cover individual risks to capital and liquidity, as set out in Titles 6 and 8.

Competent authorities should also assign an overall SREP score in accordance with the criteria specified in Title 10. This score should be assigned based on supervisory judgement and should represent the supervisory view of the overall viability of the investment firm.

Competent authorities should ensure that the scoring of the business model, internal governance and controls, capital adequacy, liquidity adequacy, and the overall SREP score achieves the following objectives:

• a. indicating the likelihood that supervisory measures may need to be taken to address concerns in accordance with the criteria specified in Title 10;
• b. acting as a trigger for the decision on whether to apply, where applicable, early intervention measures in accordance with the EBA Guidelines on triggers for use of early intervention measures; and
• c. helping with the prioritisation and planning of supervisory resources and the setting of priorities.

Competent authorities should ensure that the overall SREP score assigned based on the aggregate view of the threats from the SREP elements provides an indication of the investment firm’s overall viability, including whether the investment firm is ‘failing or likely to fail’;

When the outcome of the overall SREP assessment suggests that an investment firm can be considered to be ‘failing or likely to fail’, competent authorities should apply a score of ‘F’ and, where applicable, follow the process of engaging with resolution authorities as specified in Article 32 of Directive 2014/59/EU.