3. Assessment of the programme of operations

Competent authorities should carry out a qualitative review of the business plan, to gain an overview of all the activities that the envisaged TCB will carry out, notably the core banking services as per Article 47(1) CRD, the activities covered by authorisation under national law and those that, under national law, do not need to be authorised.

Competent authorities should verify that the envisaged activities are only targeted to clients within the Member State where the application for authorisation has been submitted and that the business strategy does not envisage cross-border activities. Any interaction between the planned activities of the envisaged TCB with other TCBs, subsidiaries or branches of the same TCG established in the EU should also be identified.

Competent authorities should identify the non-core and core business lines, the typology of target customers, the business and the financial rationale for the planned activities, also having regard to the overall strategy of the applicant head undertaking and of the TCG. Attention should be paid to the quantitative and qualitative objectives of the business plan, including the envisaged TCB ’s services or products, the value proposition and market-positioning. For this purpose, competent authorities should take into account relevant external and internal factors and the plausibility of the underlying quantitative assumptions, as well as the strengths and weaknesses of the business strategy, and any competitive advantage of the TCB.

With regard to key external factors and the business environment, competent authorities should gain an adequate understanding of the target customers and of the target market segment, having regard to the activities of the main existing players and prospective competitors. In respect of the target market segment, competent authorities should consider available market trends that may impact the performance and profitability of the envisaged TCB, for instance regulatory, macroprudential, technological, social or demographic trends.

With regard to the key internal factors, competent authorities should understand success drivers and key dependencies, by analysing, in particular the strengths in the relationship with customers, suppliers and partners, operational and resource capacity, as well as factors such as third-party providers, intermediaries and regulatory drivers.

Competent authorities should review the financial forecasts to assess whether they match the business strategy laid out in the business plan. Without prejudice to the possibility for TCBs to provide activities upon reverse solicitation as per Article 48c(4), point (d), of CRD, competent authorities should verify that the financial forecasts do not rely on cross-border activities that are envisaged to be provided upon reverse solicitation.

The competent authority should also review whether there is a clear plan towards implementation and execution of the business plan, assessing the professional capability of the local management and the adequacy of human and operational resources to implement the business strategy.

To assess the financial forecasts, competent authorities should at least:

• a) perform a quantitative review of the business plan both on the base case and the stress scenario basis with a view to assessing the envisaged TCB’s ability to achieve the projected results in compliance with the prudential requirements in both scenarios;
• b) review the explanation for the initial viability and sustainability of the business model over the three year time horizon of the business plan;
• c) in respect of the stress scenario, verify in particular that: (i) the economic and business assumptions are severe but plausible; (ii) the identified management measures are adequate;
• d) assess the financial forecasts reflecting the targeted business strategy with respect to the activities, business and product lines based on profit contribution and examine the credibility of the underlying quantitative assumptions (e.g. growth rate, revenue, costs, risks, number of customers, staff costs, macroeconomic assumptions etc.);
• e) identify the key drivers and dependencies of the business performance, including dependencies from the group, such as allocation of businesses, transfer pricing, cost absorptions and potential vulnerabilities;
• f) review the product pricing and structure, and give consideration, for instance, to the reliance on risky or concentrated or volatile sources of income;
• g) understand the various revenue sources (e.g. interest-income-based or fee-income-based), specific revenue drivers, key performance indicators and the level of risk of the related business lines;
• h) where possible and appropriate, determine a relevant peer comparison based on rival product/business lines targeting the same source of profits/customers and base the analysis on supervisory, market and macroeconomic data in possession of competent authorities;
• i) where relevant, consider assessing profitability trends and ratios, having regard to the TCB’s envisaged risk profile, and the relative performance compared to peers. To support this assessment, competent authorities may refer to the most common profitability and risk indicators, reflecting the type and level of risk envisaged by the TCB to generate profits;
• j) where appropriate and proportionate, perform a breakdown of revenues / source of income to understand whether the expected sources are consistent with the overall business strategy (type of business model, size of business);
• k) review the target cost structure (e.g. labour, administrative or IT costs) in absolute terms, and where appropriate and possible, compared to peers;
• l) pay attention to cost concentrations.

The competent authority’s assessment of the business plan should not enter into the merits of management choices, which remain within the scope of the autonomy of the applicant head undertaking. However, the competent authority may ask the applicant head undertaking to adopt changes to the TCB’s business plan that are necessary to en sure compliance with sound and prudent management.

4. Assessment of internal governance and risk management framework of the TCB

5. Assessment of AML/CFT requirements applicable to the TCB

5. 6. Assessment of the minimum capital endowment requirement

7. Assessment of the liquidity requirement

8. Assessment of the booking arrangements of the TCB