4.8 Assessing the sustainability of the investment firm’s strategy

Having conducted the analyses covered in Sections 4.4 to 4.6, competent authorities should form, or update, their view on the sustainability of the investment firm’s strategy over a forward-looking period taking into account its strategic plans and financial forecasts and the supervisory assessment of the business environment. Such forward-looking period should cover at least 3 years but could be extended to match the next expected full SREP assessment, in line with the minimum engagement model specified in Title 2.

In particular, competent authorities may assess the sustainability of the investment firm’s strategy based on:

• a. the plausibility of the investment firm’s assumptions and projected financial performance compared to the supervisory view of the current and future business environment;
• b. the impact on the projected financial performance of the supervisory view of the business environment (where this differs from the investment firm’s assumptions); and
• c. the risk level of the strategy (i.e. the complexity and ambition of the strategy compared to the current business model), and the consequent likelihood of success based on the investment firm’s likely execution capabilities (measured by the investment firm’s success in executing previous strategies of a similar scale or the performance against the strategic plan so far).

For non-complex investment firms and where financial projections are not available or not reliable, competent authorities may assess the sustainability of the investment firm’s strategy in a qualitative manner focusing on:

• a. the overall planned growth per significant business activities and potential impact of the business environment on the ability to realise the strategy;
• b. the potential misalignment between the investment firm’s long-term profit incentive and the interests of consumers and financial markets;
• c. the consistency of the investment firm’s strategy with its risk appetite.