5.1 Branch risk assessment

The consolidating supervisor and the home and host competent authorities should ensure that the significant-plus branch is subject to effective and efficient supervisory assessment under the supervisory review and evaluation process (SREP) applied to the institutions and the group in accordance with Article 97 of Directive 2013/36/EU and the EBA’s Guidelines on common procedures and methodologies for SREP¹² . In particular, the consolidating supervisor or the home competent authority should ensure that the group risk assessment or the SREP report of an institution referred to in Commission Implementing Regulation (EU) No 710/2014 includes a distinct and noticeable reference to the supervisory assessment of any significant-plus branch, including an assessment of the material risks that the branch is or might be exposed to, the branch’s business model and strategy, and the risks that the branch poses to the financial system in the host Member State (the branch risk assessment).

¹² EBA/GL/2014/13.

This branch risk assessment should be included as an annex to the group risk assessment report or the SREP report for the institution.

Institutions or significant-plus branches should not be required to prepare branch-specific ICAAP or ILAAP information. The consolidating supervisor or the home competent authority should ensure that the institution’s ICAAP and ILAAP information collected in accordance with the EBA’s Guidelines on ICAAP and ILAAP information collected for SREP purposes¹³ duly covers significant-plus branches and adequately reflects their risks exposures, as well as the capital and liquidity allocated to cover those risks. For that purpose, the consolidating supervisor or the home competent authority should ensure that an institution a branch of which has satisfied the intensification test is allowed, following the communication of the common conclusion of the authorities, sufficient time to prepare such branch-specific information.

¹³ EBA/GL/2016/10.

The consolidating supervisor or the home competent authority should ensure that the branch risk assessment captures the assessment of all SREP elements that are relevant to the branch. For that purpose, the branch risk assessment should not include an assessment of capital adequacy, as this is not relevant at branch level; however, the assessment should include an assessment of the appropriateness of internal capital and liquidity allocation to the risk exposures taken by the institution through the significant-plus branch prepared on the basis of the group’s or the institution’s ICAAP and ILAAP information, as this may be deemed relevant to the branch. At a minimum, the branch risk assessment should include the outcomes of an assessment of the following elements:

• (a) branch-specific business model and strategy and its role/position within the business model and strategy of an institution;
• (b) branch-specific governance, risk management controls, and the extent to which the branch is integrated into the internal governance and institution-wide controls of the institution;
• (c) material risks to capital, liquidity and funding that the branch is or might be exposed to, as specified in the EBA’s Guidelines on common procedures and methodologies for SREP , and any risks to the viability of the institution that stem or may stem from the risks taken by the institution through the significant-plus branch;
• (d) the risk that the branch may pose to the financial system of the host Member State;
• (e) the macroeconomic environment in which the branch operates.

In addition to the above, the branch risk assessment should provide an overview of any findings of on-site inspections and on-the-spot checks performed by the competent authority of the home or host Member State relevant to the risk assessment of the institution or the financial system in the host Member State.

In preparing the branch risk assessment, the consolidating supervisor or the home competent authority should ensure that it has obtained and duly considered appropriate input from the host competent authority. The host competent authority should, at a minimum, provide the following input:

• (a) information on and an assessment of the branch-specific business model and strategy in the context of the host Member State operating environment;
• (b) information on and an assessment of the risks that the branch may pose to the financial stability of the host Member State;
• (c) a description and an assessment of the conduct risk and information on any conduct risk events in relation to the branch operations;
• (d) a description and an assessment of the macroeconomic environment in which the branch operates.

The host competent authority should provide the input specified in the above paragraph based on the information that it has available, including from:

• (a) the statistical and financial stability reporting referred to in Articles 40 and 52 of Directive 2013/36/EU;
• (b) any on-the spot branch checks and inspections in accordance with Section 5.3;
• (c) information received from the consolidating supervisor or home competent authority in accordance with Section 5.4;
• (d) information from any meetings with the branch’s management in accordance with Section 5.6; and
• (e) any other information available to the competent authorities.

The consolidating supervisor and the home and host competent authorities should coordinate the timing of the development of the branch risk assessment to reflect the timing of the preparation of the group risk assessment or the SREP reports (i.e. the SREP cycle). Where relevant, such coordination should be performed within the framework of the college of supervisors and be reflected in the college supervisory examination programme (college SEP) and timetable for reaching a joint decision on institution-specific prudential requirements in accordance with Commission Implementing Regulation (EU) No 710/2014.