10.2 Overall SREP assessment

In determining the overall SREP assessment, competent authorities should consider the findings of the assessments of the SREP elements, specifically:

• a. the risks to which the investment firm is or may be exposed;
• b. the likelihood that the investment firm’s governance, control deficiencies and/or business model or strategy are likely to exacerbate or mitigate these risks, or expose the investment firm to new sources of risk;
• c. whether the investment firm’s own funds and liquidity resources provide sound coverage of these risks; and
• d. the potential for positive and negative interaction between the elements (notably competent authorities may consider a strong capital position as a potential mitigating factor for certain concerns identified in the area of liquidity and funding, or by contrast, that a weak capital position may exacerbate concerns in that area).

On the basis of these considerations, competent authorities should determine the investment firm’s viability, defined as its proximity to a point of non-viability on the basis of the adequacy of its own funds and liquidity resources, governance, controls and/or business model or strategy to cover the risks to which it is or may be exposed.

On the basis of this determination, competent authorities should:

• a. take any supervisory measures necessary to address concerns;
• b. determine future supervisory resourcing and planning for the investment firm, including whether any specific supervisory activities should be planned for the investment firm;
• c. where applicable, determine the need for early intervention measures as specified in Article 27 of Directive 2014/59/EU; and
• d. determine whether the investment firm can be considered to be ‘failing or likely to fail’.

The overall SREP assessment should be reflected in a viability score based on the considerations specified in Table 12 and clearly documented in a summary of the overall SREP assessment. This annual summary should also include the overall SREP score and scores for elements of the SREP, and any supervisory findings made over the course of the previous 12 months.

Table 12. Supervisory considerations for assigning the overall SREP score

Score Supervisory view Considerations

²⁴ In particular, the competent authority is of the view that (1) the investment firm infringes, or there are objective elements to support a determination that the investment firm will, in the near future, infringe, the requirements for continuing authorisation in a way that would justify the withdrawal of the authorisation by the competent authority, for reasons including but not limited to the fact that the investment firm has incurred or is likely to incur losses that will deplete all or a significant amount of its own funds; (2) the investment firm’s assets are, or there are objective elements to support a determination that the investment firm’s assets will, in the near future, be, less than its liabilities; or (3) the investment firm is, or there are objective elements to support a determination that the investment firm will, in the near future, be, unable to pay its debts or other liabilities as they fall due. Article 32(4)(d) of Directive 2014/59/EU also identifies extraordinary public support criteria for the determination of whether an investment firm is failing or likely to fail, but these criteria are not considered for the purpose of SREP and the determination made by the competent authorities.

When determining that an investment firm is ‘failing or likely to fail’, as reflected by an overall SREP score of ‘F’, competent authorities, where relevant, should engage with the resolution authorities to consult on findings following the procedure specified in Article 32 of Directive 2014/59/EU. In the case of investment firms that are not subject to Directive 2014/59/EU, but which are assessed as ‘failing or likely to fail’ competent authorities should enhance engagement with the investment firm to ensure its orderly wind-down.