90. Competent authorities may assess the level of returns against the following criteria: a. return …

Competent authorities may assess the level of returns against the following criteria:

a. return on equity (ROE) against cost of equity (COE) or equivalent measure: competent authorities may consider whether the business model generates a return above cost (excluding one-offs) on the basis of ROE against COE; other metrics, such as return on assets or risk-adjusted return on capital, as well as considering changes in these measures through the cycle, may also support this assessment;
b. cash-flow structure: competent authorities may consider whether the cash-flow mix is appropriate to the business model and to the strategy; volatility or mismatches in the cash-flow generation may mean that a business model or strategy, even one that generates returns above costs, may not be viable or sustainable given the current or future business environment; and
c. risk appetite: competent authorities may consider whether the investment firm’s business model or strategy relies on a risk appetite, for individual risks or more generally, that is considered high or is an outlier amongst the peer group, where available.

1. Overview

Summary	Regulation

Requirements
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Standards
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