Circular Letter No. 03/2025 – Financial System: Standardization Guide for Criteria to Identify Critical Functions and Strategic Business Lines

CIRCULAR LETTER NO. 03/2025
SUBJECT: FINANCIAL SYSTEM
— Standardization Guide for Criteria to Identify Critical Functions and Strategic Business Lines

Given the need to harmonize the criteria and procedures that Banking Financial Institutions (BFIs) must observe regarding the identification of critical functions and strategic business lines; The Banco Nacional de Angola (BNA) publishes the “Standardization Guide for Criteria to Identify Critical Functions and Strategic Business Lines”, hereinafter referred to as the “Guide”, annexed to this Circular Letter.

1. The Guide applies to Banking Financial Institutions supervised by the Banco Nacional de Angola, as provided for in item a) of paragraph 1 of Article 7.º of Law No. 14/21, dated May 19, 2021, General Regime of Financial Institutions, hereinafter abbreviated as “Institutions”.
2. This Circular Letter enters into force on the date of its publication.

Luanda, December 17, 2025.
DEPARTMENT OF RESOLUTION
Pedro Ntiama
-Director-

CONTINUATION OF CIRCULAR LETTER NO. 03/2025 Page 2 of 14
ANNEX
STANDARDIZATION GUIDE FOR CRITERIA TO IDENTIFY CRITICAL FUNCTIONS AND STRATEGIC BUSINESS LINES

1. OBJECTIVES
   1.1. Clarify the concept of critical functions and strategic business lines, critical services, critical operations, real economy, function interruption, and substitutability.
   1.2. Provide essential guidelines, principles, and orientations to Institutions in the process of defining criteria for identifying critical functions and strategic business lines.
   1.3. Promote the strengthening of Institutions' response capacity in identifying critical functions and strategic business lines.

2. CRITICAL FUNCTIONS TO THE ECONOMY
   2.1. Criteria regarding the determination of critical functions
   2.1.1. Institutions must identify critical functions, whose interruption has potential impact on third parties, financial markets, and the real economy, including contagion risks and loss of confidence in the Financial System.
   2.1.2. Institutions must consider a function as critical whenever:
   a) It is assured by non-affiliated third parties or the group; and, b) The sudden interruption has a negative effect on third parties, a contagion effect, or constitutes a threat to market participants' confidence.
   2.1.3. In evaluating the significant negative impact on third parties, Institutions must consider their size, market share, degree of internal and external interconnection, operational complexity, and the extent of their cross-border or group activities.
   2.1.4. In evaluating the impact on third parties, Institutions must include at least the following elements:
   a) The nature and scope of activity, national or regional impact, volume and number of operations, number of clients and counterparties, number of clients for whom the Institution is the sole or main banking sector partner; b) The Institution's relevance at local, national, and regional levels based on the market in question; c) Without prejudice to the preceding item, the Institution's relevance must be evaluated based on market share, interconnections, complexity, and cross-border activities; d) The nature of affected clients and stakeholders, namely individual and corporate clients, interbank clients, the clearing house, and public entities; and, e) The potential interruption of the function at the market, infrastructure, client, and public service levels.
   2.1.5. In evaluating the impact on third parties, Institutions must consider, among others, the following elements:
   a) Effects on market liquidity; b) Impact and importance of the interruption for corporate clients and their respective short-term liquidity needs; c) Perception of counterparties, clients, and the general public; d) Clients' capacity and speed of reaction; e) Relevance of the function for the functioning of other markets; f) Effects on liquidity, operations, and structure of other markets; g) Effects on related counterparties of main clients; and, h) Interrelation between the function and other provided services.
   2.1.6. Institutions must consider a function as substitutable only when it can be assured equivalently and within a reasonable timeframe, without generating systemic disturbances to the real economy and financial market.
   2.1.7. In evaluating the possibility of substituting a function, Institutions must consider the following criteria:
   a) Market structure for that function and availability of alternative providers; b) Other providers' capacity, requirements for exercising the function, and potential entry or expansion barriers; c) Incentives for other providers to perform these activities; d) Time required for service users to switch to the new service provider and costs of that change; and, e) Time required for other competitors to assume the functions and whether this period is sufficient to avoid significant disturbances, depending on the service type.
   2.2. Continuity of critical functions in the resolution process
   2.2.1. Institutions must ensure continuity of the critical functions they perform, recognizing that this constitutes a fundamental objective of the resolution regime and a priority requirement in recovery and resolution planning, being essential for preserving financial system stability and protecting the real economy.
   2.2.2. Institutions must identify critical services within recovery plans.
   2.2.3. Institutions must distinguish between critical functions and strategic business lines, considering that critical functions are evaluated by their importance to the functioning of the real economy, financial market, and financial stability, while strategic business lines are evaluated by their relevance to the Institution itself, namely regarding their contribution to revenues and profits.
   2.2.4. Institutions must ensure that, for the purpose of defining a “critical function”, the term “functions” is understood as activities, services, and operations provided to third parties, and their identification cannot be based solely on an internal perspective oriented toward the Institution's own activity or organization.
   2.3. Assessment of institution-specific criticality: bottom-up approach
   2.3.1. Institutions must classify services as critical only when they are intrinsically linked to critical functions provided to third parties and their interruption could lead to collapse or constitute a serious obstacle to the performance of those critical functions.
   2.3.2. Institutions must evaluate the importance of provided functions not only based on direct impact on the real economy, but also considering impact on the financial market, integrating market participants' confidence as an essential element of the criticality test.
   2.3.3. Institutions must ensure that designating a function as critical is used exclusively for defining effective resolution strategies, and this classification cannot be interpreted as a guarantee of continuity under any circumstances, nor as exemption from losses in case of bankruptcy.
   2.3.4. Institutions must ensure that identifying critical functions contributes to eliminating impediments to resolvability.
   2.3.5. Without prejudice to the preceding points, for a function to be considered critical, it must observe the following criteria:
   a) The function is assured by an institution to non-affiliated third parties or the group; and, b) The sudden inability to assure this function would be likely to have a significant impact on third parties, cause contagion, or undermine general market confidence due to:
   i. Systemic relevance of the function for third parties; and,
   ii. Systemic relevance of the Institution or group in exercising its functions.
   2.3.6. Institutions must ensure that, when evaluating the criticality of their critical functions, the following elements are considered:
   a) Their size; b) Their respective market share; c) Degree of external and internal interconnection; d) Level of operational complexity; and, e) Extent of the group's or institution's cross-border activities.
   2.3.7. Institutions must use the criteria reflected in the standardized assessment test defined by the Banco Nacional de Angola.
   2.3.8. For the purpose of the preceding point, criticality assessment for each function must be based on a rigorous analysis of the material impact that interrupting that function's provision would cause to the real economy and financial market functioning.
   2.3.9. To ensure consistency in applying identification criteria, Institutions must consider the following dimensions:
   a) Impact of function interruption on third parties and the market as a whole; and, b) Market structure's capacity, by its own dynamics, to substitute that function efficiently and in a timely manner.
   2.4. Assessment of impact on third parties and the Financial System
   2.4.1. Institutions must proceed, within their recovery plan, to assess the impact of sudden interruption of any function considered critical, referencing the following criteria:
   a) Direct impact on non-systemic third parties: the function must not be considered critical when its discontinuity produces only direct negative impact on a reduced number of counterparties; b) Systemic impacts and relevant interconnections: the function will be considered critical when its cessation implies significant adverse effects on financial market stability or real economy, namely:
   i. Contagion effects: if failure to provide the function causes market disorganization, with potential negative impacts on exposed participants, affecting their solvency or liquidity in a cascade;
   ii. Generalized loss of confidence in the market: whenever cessation of the function has potential to generate negative reactions among market participants, clients, service providers, and public institutions, affecting global stability; and,
   iii. Interdependence with other markets and functions: connections to adjacent markets or complementary functions whose failure may have adverse structural effects must be evaluated.
   2.4.2. For criticality assessment purposes, Institutions must consider the following elements:
   a) Nature and scope of function:
   i. Function type (e.g., retail payments, clearing, settlement, and custody);
   ii. Geographic scope (national, regional, and international);
   iii. Volume and frequency of transactions;
   iv. Number of affected clients and counterparties; and,
   v. Client dependence on the Institution as main banking partner.
   b) Systemic relevance of the Institution:
   i. Market share (evaluated by number of clients, transactions, or business volume);
   ii. Degree of interconnectivity with other entities;
   iii. Structural and organizational complexity; and,
   iv. Presence of cross-border activities.
   c) Profile of affected clients: Segmentation between retail, corporate, public, interbank, and market infrastructures. d) Impacts derived from function cessation:
   i. Effects on liquidity and market functioning;
   ii. Consequences for clients' short-term financing needs;
   iii. Clients' reaction capacity to failure;
   iv. Public visibility and reputational sensitivity; and,
   v. Dependence relationship with other functions or services.
   2.4.3. Institutions must justify, in a reasoned manner, the criteria used to classify a function as critical, demonstrating methodological robustness and alignment with principles established in this Guide.
   2.4.4. Institutions must ensure that assessment of cessation impact on critical functions is sufficiently granular and periodically updated, serving as basis for recovery and resolution plans.
   2.5. Assessment of substitutability of critical functions
   2.5.1. Institutions must declassify a function as critical whenever it is demonstrated, based on reasoned analysis, that it can be substituted by other market participants under comparable conditions, with acceptable costs and within a reasonable timeframe, without negatively affecting the market or causing generalized loss of confidence among participants.
   2.5.2. Institutions must perform substitutability assessment based on structured market analysis and competitive dynamics, considering the following elements:
   a) Market concentration and offer structure:
   i. Evaluation of number of active market participants and respective market share;
   ii. Existence of substitutable providers with capacity to assume the function at adequate scale and quality; and,
   iii. Degree of relevant market concentration.
   b) Existence of functional substitutes:
   i. Identification of equivalent functions or services that can perform the same role, even if offered in differentiated contexts (e.g., geographies and client segments); and,
   ii. Evaluation of technical, commercial, or regulatory barriers to function provision by third parties.
   c) Capacity and substitution appetite:
   i. Competitors' operational capacity to absorb clients or processes associated with the function under analysis;
   ii. Evaluation of function attractiveness for the market, namely profitability, margins, operational synergies, cross-selling, etc.;
   iii. Entry barriers and operational complexity;
   iv. Technical infrastructure, specialized knowledge, and operational requirements necessary for function provision;
   v. Legal, regulatory, reputational, and commercial barriers to new operators entering the market;
   vi. Substitution costs and time;
   vii. Estimated time necessary to guarantee effective function substitution without significant market or end-user disturbance;
   viii. Identification of transition and adaptation costs for users and providers; and,
   ix. Evaluation of critical tolerance period for function interruption to avoid systemic impact.
   2.5.3. Institutions must ensure that substitutability assessment takes into account adequate granularity, recognizing that a function may be substitutable at the national level but not necessarily at regional or local levels.
   2.5.4. Institutions must justify the adopted assessment level, based on territorial coverage of the function and importance of markets in which it is provided.
   2.5.5. Whenever possible, Institutions must map critical functions with respective potential providers (internal or external), indicating:
   a) Degree of substitutability; b) Expected transition timeframes; c) Risk mitigation elements in case of failure; d) Degree of third-party dependence (internal or external); and, e) Contractual conditions to ensure operational continuity (e.g., continuity clauses and immediate substitution mechanisms).
   2.6. Critical services associated with critical functions
   2.6.1. Institutions must identify services that directly support critical functions, distinguishing between:
   a) Delicate or sensitive services: those whose interruption directly affects a specific critical function; and, b) Shared services: those used by multiple functions that, in case of failure, may broadly compromise operational continuity.
   2.6.2. Critical services must be organized to ensure continuity, through robust internal and segregated structures, via contractual agreements with external providers that guarantee operationality in crisis situations.
   2.6.3. Institutions must perform substitutability assessment according to the proportionality principle.

3. STRATEGIC BUSINESS LINES
   3.1. Main business lines
   3.1.1. Institutions must ensure identification of their main business lines, which must be duly considered within recovery and resolution planning.
   3.1.2. The recovery plan must contain a detailed description of processes used to evaluate value, marketability, and legal and economic segregation of the Institution's main business lines, operations, and relevant assets.
   3.1.3. Identification of main business lines must consider:
   a) Institution's internal organizational structure; b) Adopted business strategy; and, c) Relevant financial indicators, including each business line's contribution to consolidated results.
   3.1.4. Without prejudice to the preceding point, analysis must not be limited to financial criteria; the Institution must consider as main business line that which, even if unprofitable at present, proves essential due to its franchise value generation capacity, systemic contribution, or future growth potential.
   3.2. Criteria regarding determination of strategic business lines
   3.2.1. Institutions must classify as strategic business lines all activities and services associated that represent relevant sources of revenues, profits, or breakup value for the Institution itself or for the group in which they are integrated.
   3.2.2. Institutions must identify strategic business lines based on internal organization, business strategy, and contribution to financial results, using indicators that include, namely:
   a) Revenues generated as percentage of total revenues; b) Profit generated as percentage of total profit; c) Capital or asset profitability; d) Total assets, revenues, and results; e) Client base, geographic presence, links between Institution's brands and operations with other group companies; f) Impact of strategic business line cessation on costs and results, if it is a source of financing or liquidity; g) Growth prospects for strategic business lines and company attractiveness to competitors, as potential acquisition; and, h) Market potential and breakup value.
   3.2.3. Institutions must consider, in identifying strategic business lines, future and expected revenues, growth prospects, and breakup value, provided that used assumptions are based on realistic and well-founded projections.
   3.2.4. Strategic business lines may be based on activities that, by themselves, do not generate direct profits for the Institution, but support strategic business lines of the Institution, thus indirectly contributing to its profits.
   3.3. Assessment elements for strategic business lines
   For determining main strategic business lines, Institutions must consider, based on the proportionality principle, the following elements, without prejudice to others that prove relevant:
   a) Quantitative and qualitative indicators of strategic relevance, namely:
   i. Percentage of revenues and profits generated relative to total Institution;
   ii. Asset and capital profitability;
   iii. Volume of assets allocated to strategic business line;
   iv. Client base, geographic scope, brand notoriety, and operational links with other group areas; and,
   v. Potential impact of strategic business line cessation on liquidity, operating costs, and Institution's gains.
   b) Assessment of growth prospects and franchise value, well-founded in sustained and plausible projections; c) Attractiveness of the business line to third parties, namely competitors or potential acquirers, considering market positioning; and, d) Market share of the business line and Institution's competitive position in the sector, whenever directly linked to revenue continuity or strategic activity potential.