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Supervisory Review and Evaluation Process (“SREP”)

The general criteria and methodologies for the Supervisory Review and Evaluation Process (“SREP”) are disclosed this section of the website. The FMA hereby fulfils its obligations pursuant to Article 57 (1) (c) of Directive (EU) 2019/2034 transposed in Article 48 para. 1 no. 3 WPFG in conjunction with Article 3 Implementing Regulation (EU) No. 2022/389.

The Supervisory Review and Evaluation Process (SREP) along with the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP) forms a significant part of the evaluation of the overall risk of an investment firm.

Internal Capital and Liquidity Adequacy Assessment Process (ICAAP, ILAAP)

The investment firm itself is responsible for conducting the ICAAP/ILAAP. Pursuant to Article 14 WPFG the ICAAP and ILAAP cover all plans and procedures that investment firms use “to assess and maintain on an ongoing basis the amounts, types and distribution of internal capital and liquid assets that they consider adequate for the quantative and qualitative coverage of risks which they may pose to others and to which the investment firms themselves are or might be exposed.“ (Article 14 para. 1 WPFG).

The selected approaches have to be proportional to the type, scale and complexity of the transactions conducted by the investment firm (principle of proportionality).

Supervisory Review and Evaluation Process (“SREP”)

The SREP is conducted by the competent supervisory authorities. It forms the supervisory authority’s comprehensive process for the supervision and evaluation of the business model, of the investment firm’s risk management and the adequacy of its ICAAP and ILAAP as well as its internal governance. Furthermore, it also checks the compliance with all relevant regulations, identifies the existence of conditions that amount to transgressions and permits the imposing of supervisory measures (see Article 27 WPFG).

Guidelines issued by ESMA in conjunction with the EBA relating to the SREP can be found at EBA/ESMA Guidelines. In addition EBA has also published information about the SREP in the EBA Guidelines EBA/GL/2022/03.

According to these Guidelines the SREP consists of four principle components:

  • Business model analysis
  • Evaluation of internal governance and the institution-wide controlsEvaluation of internal governance and the institution-wide controls
  • Evaluation of the capital risks, and
  • Evaluation of the risks to liquidity and funding.

The evaluation is based on a common scoring. These Guidelines have been applicable since 19.06.2023.

The legal basis for the risk review is defined in Article 25 para. 1 WPFG in conjunction with Article 20 WPFG. Based on this the competent authority shall monitor that the investment firms have robust strategies, policies, processes and systems for the identification, management and monitoring of the following risks (Article 20 para. 1 WPFG):

  • Risks to clients
  • Market risks;
  • Operational risk
  • Liquidity risk

As well as, in particular, pursuant to Article 25 para. 1 WPFG

  • Geographical distribution of exposures
  • Systemic risks
  • IT risks
  • Interest rate risk arising from non‐trading book activities

Pursuant to Article 25 para. 3 WPFG the Austrian Financial Market Authority (FMA) shall determine the intensity of the supervisory review and evaluation process taking into account the size, nature, scale and complexity of the activities performed by the investment firm as well as their systemic importance where applicable.

Article 25 et seq. WPFG defines the duties and obligations of the Financial Market Authority in its supervisory activities; Article 28 WPFG defines the supervisory powers in relation to the supervision of investment firms:

Where an investment firm fails to observe the obligations under supervisory law, under Art. 27 para. 1 WPFG the Financial Market Authority shall instruct the investment firm to take the necessary measures within a reasonable period of time. Pursuant to Article 28 para. 1 WPFG, the Financial Market Authority may also intervene in the activities of investment firms in an effective and proportional manner.

Pursuant to Article 28 para. 2 WPFG, the Financial Market Authority is in particular authorised to demand the holding of additional own funds, adapted requirements in terms of liquid assets and own funds, a plan for restoring compliance with supervisory requirements within one year, the divestment of high-risk business activities, and the reduction of risk with regard to products, activities and systems as well as supplementary information. The Financial Market Authority may also prescribe a specific provision policy or treatment of assets in terms of own funds requirements to investment firms.