21. What is the financial situation of the applicant, taking account, in particular, of:
a. the forecast information on the applicant at an individual level and, where applicable, at consolidated group and sub-consolidated levels, at least on a base case and stress case scenario basis for three years;
b. the statutory financial statements of the applicant at the individual level and, where applicable, at the consolidated group and sub-consolidated levels for at least the last three financial years where the applicant has been in operation;
c. where relevant, the outline of any indebtedness incurred or expected to be incurred by the applicant credit institution;
Explanatory notes
It is essential that the scope of the requested permission correspond with the description of the proposed business and regulated activities of the applicant. The carrying out of a regulated activity without appropriate permission could result in the imposition of a criminal or civil sanction in accordance with the regulations and controls in force in the relevant Member State.
In addition, anticipating the SREP business model category of the applicant would help in determining if special requirements have to be formulated alongside the granting of the licence.
Explanatory notes
It is a requirement pursuant to Directive 2014/49/EU (the DGSD) for all credit institutions to participate in a deposit guarantee scheme.
d. where relevant, the outline of any security interest, guarantees or indemnities granted or expected to be granted by the applicant prior to the commencement of its activities as a credit institution;
e. where available, information about the credit rating of the applicant credit institution and the overall rating of its group; and
f. where relevant, an analysis of the scope of consolidated supervision?
Frameworks and policies
22. Has the applicant provided outlines of the following frameworks and policies:
a. risk management framework;
b. liquidity risk management policy;
c. funding concentration and diversification policy;
d. collateral management policy;
e. deposit policy;
f. credit and lending policy;
g. concentration risk policy;
h. provisioning policy;
i. dividend distribution policy; and j. trading book policy?
23. Does the applicant propose to engage in back-to-back or intragroup operations to transfer risk to another group entity? If so:
Explanatory notes
It is vital for the applicant to demonstrate that it has appropriate financial resources, including under stressed scenarios, in order to show its financial viability. Where the applicant is in a group, information about the financial position of the group is also relevant to this assessment.
For considerations relating to applicants in a group, see further the sections on the
‘programme of operations’, ‘structural organisation’, ‘internal control mechanism’, ‘audit’
and ‘shareholders or members with qualifying holdings, 20 largest shareholders or members’.
a. what is the rationale for this approach;
b. has the applicant demonstrated sufficient resources to fully manage counterparty credit risk and any material risks that are to be transferred in the event of the failure of that counterparty; and
c. what are the residual risks?
Explanatory notes
It is important that the applicant has prepared outlines of frameworks and policies that demonstrate that it is sufficiently prepared to carry out the activities referred to in its programme of activities and to manage relevant risks and to show that its business will be conducted in a prudent manner.
It is not necessary for the applicant to have in place at the date of submission of the application full frameworks and policies but it is important that the competent authority be satisfied that the applicant has the capacity to put in place the necessary measures in relation to the carrying out of its activities, which can be checked after authorisation as a matter of ongoing supervision.
If the application results from a former branch conversion or the setting up a subsidiary from a group already licensed, the history of supervisory decisions and regulatory ratios should be exchanged; in particular, all (joint) decisions should be exchanged, by virtue of CRD provisions on information exchange for EU licensed entities or cooperative agreement as established for non-EU licensed parent entities, respectively.
Taking on board a forward-looking perspective, the competent authority will check that prudential reporting capacities will be available at once. Both the competent authority and the applicant would benefit from considering a set of simulated prudential ratios to make sure the credit institution’s business is started on the right footing.
Where it is proposed that the applicant engage in back-to-back or intragroup operations to transfer risk to another group entity, the competent authority should verify that the applicant has adequate resources to fully manage counterparty credit risk and any material risks that are to be transferred in the event of the failure of that counterparty.
Competent authorities should assess likely concentration risk and the proposals for management and controls, paying special attention to large exposures or concentration risks that may result from proposals to use systemic back-to-back operations.
In relation to proposals to use internal models, where the applicant’s business (including its portfolio of exposures) is similar to that of another credit institution in the group entity which has already a permission to use internal models, a competent authority will consider whether or not the ‘use test’ and the ‘experience test’ (assessed according to the provisions of Chapter 4 of the draft RTS on the specification of the assessment methodology for competent authorities regarding the compliance of an institutions with the requirements to use the IRB Approach in accordance with Articles 144(2), 173(3) and 180(3)(b) of Regulation (EU) No 575/2013) are satisfied in relation to the applicant, and, subject to the application of the existing EU framework for models approval, may accept the use of internal models for the applicant.
Recovery plan
24. Where applicable, has the applicant provided a description of its process for the development of a recovery plan within the meaning of point (32) of Article 2(1) of Directive 2014/59/EU?