Related provisions for MIPRU 4.2BA.14

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IFPRU 2.2.14RRP
As part of its obligations under the overall Pillar 2 rule, a firm must :(1) make an assessment of the firm-wide impact of the risks identified in line with that rule, to which end a firm must aggregate the risks across its various business lines and units, taking appropriate account of the correlation between risks; (2) take into account the stress tests that the firm is required to carry out as follows: (a) (for a significant IFPRU firm) under the general stress and scenario
IFPRU 2.2.36RRP
The general stress and scenario testing rule in IFPRU 2.2.37 R and related rules and guidance apply to a significant IFPRU firm.
IFPRU 2.2.37RRP
(1) As part of its obligation under the overall Pillar 2 rule, a firm that is a significant IFPRU firm must:(a) for the major sources of risk identified in line with IFPRU 2.2.7R(2), carry out stress tests and scenario analyses that are appropriate to the nature, scale and complexity of those major sources of risk and to the nature, scale and complexity of the firm's business; and(b) carry out the reverse stress testing under SYSC 20 (Reverse stress testing).(2) In carrying out
IFPRU 2.2.38GRP
To comply with the general stress and scenario testing rule, a firm should undertake a broad range of stress tests which reflect a variety of perspectives, including sensitivity analysis, scenario analysis and stress testing on an individual portfolio, as well as a firm-wide level.
IFPRU 2.2.39GRP
A firm with an IRB permission which has any material credit exposures excluded from its IRB models should also include these exposures in its stress and scenario testing to meet its obligations under the general stress and scenario testing rule. A firm without IRB permission should conduct analyses to assess risks to the credit quality of its counterparties, including any protection sellers, considering both on and off-balance sheet exposures.
IFPRU 2.2.40GRP
In carrying out the stress tests and scenario analyses under IFPRU 2.2.37 R (1), a firm should also consider any impact of the adverse circumstances on its own funds. In particular, a firm should consider the capital ratios in article 92 of the EU CRR (Own funds requirements) where its common equity tier 1 capital and additional tier 1 capital is eroded by the event.
IFPRU 2.2.41GRP
A firm should assign adequate resources, including IT systems, to stress testing and scenario analysis, taking into account the stress testing techniques used, in order to accommodate different and changing stress tests at an appropriate level of granularity.
IFPRU 2.2.42GRP
For the purpose of IFPRU 2.2.37 R (5), a firm should consider whether the nature of the major sources of risks identified by it, in line with IFPRU 2.2.7 R (2) (Main requirement relating to risk strategies, processes and systems), and their possible impact on its financial resources suggest that such tests and analyses should be carried out more frequently. For instance, a sudden change in the economic outlook may prompt a firm to revise the parameters of some of its stress tests
IFPRU 2.2.43RRP
A firm must make a written record of the assessments required under this chapter. These assessments include those carried out on a consolidated basis and on an individual basis. In particular, it must make a written record of:(1) the major sources of risk identified in accordance with the overall Pillar 2 rule;(2) how it intends to deal with those risks; and(3) details of the stress tests and scenario analyses carried out, including any assumptions made in relation to scenario
IFPRU 2.2.51RRP
For the purpose of the ICAAPrules as they apply on a consolidated basis or on a sub-consolidated basis: (1) the firm must ensure that the FCA consolidation group has the processes, strategies and systems required by the overall Pillar 2 rule;(2) the risks to which the overall Pillar 2 rule and the general stress and scenario testing rule refer are those risks as they apply to each member of the FCA consolidation group;(3) the reference in the overall Pillar 2 rule to amounts
IFPRU 2.2.52RRP
(1) This rule relates to the assessment of the amounts, types and distribution of financial resources, own funds and internal capital (referred to in this rule as "resources") under the overall Pillar 2 rule as applied on a consolidated basis and to the assessment of diversification effects as referred to in IFPRU 2.2.14 R (3)(b) as applied on a consolidated basis.(2) A firm must be able to explain how it has aggregated the risks referred to in the overall Pillar 2 rule and the
IFPRU 2.2.64GRP
The general stress and scenario testing rule requires a firm to carry out stress tests and scenario analyses as part of its obligations under the overall Pillar 2 rule. Both stress tests and scenario analyses are undertaken by a firm to further a better understanding of the vulnerabilities that it faces under adverse conditions. They are based on the analysis of the impact of a range of events of varying nature, severity and duration. These events can be financial, operational
IFPRU 2.2.65GRP
Stress testing typically refers to shifting the values of individual parameters that affect the financial position of a firm and determining the effect on the firm's financial position.
IFPRU 2.2.67GRP
There are three broad purposes of stress testing and scenario analysis: (1) it can be used as a means of quantifying how much capital might be absorbed if an adverse event or events occurs (ie, a simple 'what if' approach to estimating exposure to risks), this might be a proportionate approach to risk management for an unsophisticated business;(2) it can be used to provide a check on the outputs and accuracy of risk models, particularly in identifying non-linear effects when aggregating
IFPRU 2.2.68GRP
One of the main purposes of stress tests and scenario analyses under the general stress and scenario testing rule is to test the adequacy of overall financial resources. Scenarios need only be identified, and their impact assessed, in so far as this facilitates that purpose. In particular, the nature, depth and detail of the analysis depend, in part, upon the firm's capital strength and the robustness of its risk prevention and risk mitigation measures.
IFPRU 2.2.69GRP
Both stress testing and scenario analyses are forward-looking analysis techniques which seek to anticipate possible losses that might occur if an identified risk crystallises. In applying them, a firm should decide how far forward to look. This should depend upon:(1) how quickly it would be able to identify events or changes in circumstances that might lead to a risk crystallising resulting in a loss; and(2) after it has identified the event or circumstance, how quickly and effectively
IFPRU 2.2.70GRP
Where a firm is exposed to market risk, the time horizon over which stress tests and scenario analyses should be carried out will depend on, among other things, the maturity and liquidity of the positions stressed. For example, for the market risk arising from the holding of investments, this will depend upon:(1) the extent to which there is a regular, open and transparent market in those assets, which would allow fluctuations in the value of the investment to be more readily
IFPRU 2.2.73GRP
(1) In identifying an appropriate range of adverse circumstances and events in accordance with IFPRU 2.2.37 R (2):(a) a firm will need to consider the cycles it is most exposed to and whether these are general economic cycles or specific to particular markets, sectors or industries;(b) for the purposes of IFPRU 2.2.37 R (2)(a), the amplitude and duration of the relevant cycle should include a severe downturn scenario based on forward-looking hypothetical events, calibrated against
IFPRU 2.2.76GRP
(1) Stress and scenario analyses should, in the first instance, be aligned with the risk appetite of the firm, as well as the nature, scale and complexity of its business and of the risks that it bears. The calibration of the stress and scenario analyses should be reconciled to a clear statement setting out the premise upon which the firm's internal capital assessment under the overall Pillar 2 rule is based.(2) In identifying adverse circumstances and events in line with IFPRU
IFPRU 2.2.77GRP
A firm should use the results of its stress testing and scenario analysis not only to assess capital needs, but also to decide if measures should be put in place to minimise the adverse effect on the firm if the risk covered by the stress or scenario test actually materialises. Such measures might be a contingency plan or might be more concrete risk mitigation steps.
IFPRU 2.2.80GRP
If a firm has a current funding obligation in excess of normal contributions or there is a risk that such a funding obligation will arise then, when calculating available capital resources, the firm should include these sources of risk as part of its:2(1) stress tests and scenario analysis under IFPRU 2.2.37R and considering at least the scenarios in IFPRU 2.2.81G; and2(2) capital projections under IFPRU 2.2.73G.2
IFPRU 2.2.82GRP
A firm is expected to determine where the scope of any stress test impacts upon its pension obligation risk and estimate how the relevant measure of pension obligation risk will change in that scenario. For example, in carrying out stress tests under IFPRU 2.2.37 R, a firm must consider how a stress scenario, such as an economic recession, would impact on the firm's current obligations towards its pension scheme and any potential increase in those obligations. Risks such as interest-rate
IFPRU 2.2.86GRP
A firm should include in the written record in IFPRU 2.2.43 R (Documentation of risk assessments) a description of the broad business strategy of the FCA consolidation group or the non-EEA sub-group of which it is a member, the group's view of its principal risks and its approach to measuring, managing and controlling the risks. This description should include the role of stress testing, scenario analysis and contingency planning in managing risk on an individual basis and consolidated
IFPRU 2.2.88GRP
In performing stress tests and scenario analyses, a firm should take into account the risk that its group may have to bring back on to its consolidated balance sheet the assets and liabilities of off-balance sheet entities as a result of reputational contagion, notwithstanding the appearance of legal risk transfer.
IFPRU 2.2.89GRP
A firm should carry out stress tests and scenario analyses to a degree of sophistication which is commensurate with the complexity of its group and the nature of its group risk.
BIPRU 12.5.3GRP
In conducting its ILAA, a firm is obliged to comply with the stress testing and related requirements which appear in this section. The rules in this section also provide that in its ILAA a firm must include an assessment of the firm's compliance with the standards set out in BIPRU 12.3 and BIPRU 12.4.
BIPRU 12.5.4RRP
A firm must ensure that:(1) it regularly carries out an ILAA;(2) it makes a written record of its ILAA;(3) its ILAA is proportionate to the nature, scale and complexity of its activities; (4) its ILAA takes into account whole-firm and group-wide liquidity resources only to the extent that reliance on these is permitted by the appropriate regulator;(5) its ILAA includes an assessment of the results of the stress tests required by BIPRU 12.5.6 R; and(6) its ILAA includes an assessment
BIPRU 12.5.6RRP
A firm must ensure that in carrying out its ILAA it considers how that firm's liquidity resources change as a result of:(1) the stress in BIPRU 12.5.8 R (the first liquidity stress);(2) the stress in BIPRU 12.5.11 R (the second liquidity stress); and(3) the first and second liquidity stresses occurring simultaneously.
BIPRU 12.5.7GRP
The appropriate regulator will review the results of a firm'sILAA, including the results of the stress tests required by BIPRU 12.5.6R, as part of its Supervisory Liquidity Review Process (SLRP). The appropriate regulator's review of the stress test results will assist it assessing the adequacy of a firm's liquidity resources relative to other ILAS BIPRU firms and, consequently, in calibrating the individual liquidity guidance that it gives to that firm. BIPRU 12.9.2G sets out
BIPRU 12.5.8RRP
The first liquidity stress to which BIPRU 12.5.6R refers is an unforeseen, name-specific, liquidity stress in which:(1) financial market participants and retail depositors consider that in the short-term the firm will be or is likely to be unable to meet its liabilities as they fall due;(2) the firm's counterparties reduce the amount of intra-day credit which they are willing to extend to it;(3) the firm ceases to have access to foreign currency spot and swap markets; and(4) over
BIPRU 12.5.9RRP
For the purpose of BIPRU 12.5.8R (1) to (3), a firm must assume that the initial, short-term, period of stress lasts for at least two weeks.
BIPRU 12.5.11RRP
The second liquidity stress to which BIPRU 12.5.6R refers is an unforeseen, market-wide liquidity stress of three months duration.
BIPRU 12.5.12RRP
For the purpose of BIPRU 12.5.11R, a firm must assume that the second liquidity stress is characterised by:(1) uncertainty as to the accuracy of the valuation attributed to that firm's assets and those of its counterparties;(2) inability to realise, or ability to realise only at excessive cost, particular classes of assets, including those which represent claims on other participants in the financial markets or which were originated by them;(3) uncertainty as to the ability of
BIPRU 12.5.13RRP
In carrying out the liquidity stresses required by BIPRU 12.5.6R, a firm must:(1) analyse each of the sources of risk identified in BIPRU 12.5.14R;(2) record the evidence which supports any behavioural assumptions that it makes in carrying out those stress tests;(3) record the evidence which supports its assessment of the adequacy of its liquid assets buffer; and(4) identify those of the measures set out in its contingency funding plan that it would implement.
BIPRU 12.5.15RRP
For the purpose of assessing its wholesale funding risk, a firm must estimate the gross wholesale outflows that could occur under the liquidity stresses required by BIPRU 12.5.6R.
BIPRU 12.5.16RRP
In assessing its wholesale funding risk, a firm must:(1) identify its wholesale liabilities;(2) determine how those liabilities behave under normal financial conditions;(3) assess how they will behave under the stresses required by BIPRU 12.5.6R; and(4) divide its wholesale liabilities into funding which the firm assesses as having a higher than average likelihood of withdrawal in response to actual or perceived changes in the firm's credit-worthiness (Type A wholesale funding)
BIPRU 12.5.17GRP
In assessing how its liabilities behave under stress, the firm should categorise its liabilities according to value, maturity and estimated speed of outflow. The firm should bear in mind that wholesale funding risk may crystallise as an acute loss of funds in the short term, or as a longer-term gradual leakage of funds, or as both.
BIPRU 12.5.19RRP
For the purpose of BIPRU 12.5.15R, a firm must assume that it is unable to roll any of its Type A wholesale funding in the first two weeks of the stresses.
BIPRU 12.5.21RRP
For the purpose of assessing its retail funding risk, a firm must:(1) estimate the gross retail outflows that could occur under the liquidity stresses required by BIPRU 12.5.6R;(2) identify the stress, or combination of stresses, to which it considers its retail funding to be most vulnerable and estimate the gross retail outflows that could occur under that stress or combination of stresses; and(3) divide its retail funding into funding which the firm assesses as having a higher
BIPRU 12.5.23GRP
For the purposes of assessing behaviour under stress, a firm should categorise its retail liabilities according to: value, maturity, estimated speed of outflow, product type, interest rate applied and any other factor that it considers relevant to its retail deposit structure.
BIPRU 12.5.26RRP
For the purpose of assessing its intra-day liquidity risk arising from its direct participation in a payment or settlement system, a firm must in relation to each such system in which it participates:(1) calculate on an intra-day basis the net amounts of collateral and cash required by that firm to fund participation in that system; and(2) estimate how the amounts in (1) could change under the liquidity stresses required by BIPRU 12.5.6 R.
BIPRU 12.5.29RRP
At the same time as it carries out the calculation and estimation in BIPRU 12.5.26 R, a firm which participates directly in one or more payment or settlement systems must also estimate the impact on its liquidity position of the customer to which it has the largest intra-day credit exposure defaulting on its payment obligations to the firm:(1) under normal financial conditions; and(2) under the stresses required by BIPRU 12.5.6 R.
BIPRU 12.5.34RRP
For the purpose of assessing its intra-day liquidity risk a firm to which BIPRU 12.5.33R applies must assess the effect on its own position of a participant firm from which it receives intra-day credit or with which it has a prefunded account being unable to perform its obligations to that firm:(1) under normal financial conditions; and(2) under the stresses required by BIPRU 12.5.6 R.
BIPRU 12.5.38RRP
In relation to an incoming EEA firm or third country BIPRU firm which does not have a whole-firm liquidity modification, that firm must assess the risk that its UKbranch may be exposed to calls on liquidity under its control from its head office:(1) in normal financial conditions; and(2) under the liquidity stresses required by BIPRU 12.5.6 R.
BIPRU 12.5.45GRP
In relation to derivatives positions, a firm should:(1) assess the effect on its cash flows arising from the maturity, exercise and repricing of derivatives in which it holds a position, including the impact of counterparties:(a) who may require the posting of additional margin or collateral in the event of a decline in that firm's credit rating;(b) who may require the posting of additional margin or collateral (or the return to them of margin or collateral) in the event of a
BIPRU 12.5.46GRP
In relation to its contingent liabilities, a firm should:(1) calculate the impact on its cash flows of those of its contingent obligations that will be triggered in normal financial conditions; and(2) estimate the impact on its cash flows of those of its contingent obligations that may be triggered under the liquidity stresses required by BIPRU 12.5.6 R.
BIPRU 12.5.48GRP
In relation to its commitments (other than liquidity facilities to support securitisation programmes)), a firm should:(1) calculate its maximum contractual exposure arising from those commitments;(2) calculate the effect on its cash flows of the drawing of those commitments in normal financial conditions; and(3) estimate the effect on its cash flows of the drawing of those commitments under the liquidity stresses required by BIPRU 12.5.6 R.
BIPRU 12.5.49GRP
For the purpose of BIPRU 12.5.48G, a firm should:(1) consider its contractual exposure to the following types of commitment: committed funding facilities, undrawn loans and advances to wholesale counterparties, mortgages that have been agreed but not yet been drawn down, credit cards, overdrafts (and other retail lending facilities);(2) ensure that its analysis of each type of commitment is sufficiently granular to enable that firm to:(a) assess the circumstances in which counterparties
BIPRU 12.5.50GRP
In relation to liquidity facilities to support securitisation programmes, a firm should:(1) assess the extent of its contractual obligations to provide liquidity support to sponsored and third-party structured vehicles;(2) identify the circumstances in which support will, or is likely to, be called; and(3) assess the impact on that firm's cash flows of such support being called:(a) in normal financial conditions; and(b) under the liquidity stresses required by BIPRU 12.5.6R.
BIPRU 12.5.52RRP
For the purposes of assessing its franchise-viability risk, a firm must assess, under the liquidity stresses required by BIPRU 12.5.6 R, the liquidity resources required to maintain its core business franchise and reputation.
BIPRU 12.5.53GRP
Franchise-viability risk is the risk that in the stresses required by BIPRU 12.5.6R a firm may not have sufficient liquidity resources to maintain its core business franchise and reputation.
BIPRU 12.5.56RRP
For the purpose of assessing its exposure to marketable assets risk, a firm must assess how the marketable assets comprised in its liquidity resources will behave:(1) under normal financial conditions; and(2) under the liquidity stresses identified in BIPRU 12.5.6R, including an assessment of the effect of these stresses on:(a) its ability to derive funding from its marketable assets in a timely fashion;(b) the potential for using those assets as collateral to raise secured funding
BIPRU 12.5.63RRP
For the purpose of assessing its exposure to non-marketable assets risk, a firm must assess how the non-marketable assets in its liquidity resources will behave:(1) under normal financial conditions; and(2) under the liquidity stresses required by BIPRU 12.5.6 R, including an assessment of the effect of these stresses on:(a) the firm's ability to derive funding from its non-marketable assets; and(b) the impact on the firm's liquidity position of any consequences for its funding
BIPRU 12.5.67RRP
For the purpose of assessing its exposure to non-marketable assets risk a firm must assess the extent to which the behaviour of inflows from retail loans under the liquidity stresses required by BIPRU 12.5.6R may differ from that suggested by their contractual terms.
BIPRU 12.5.75RRP
As part of its ILAA, a firm must assess the impact on the degree of diversification in its liquidity resources of the stresses required by BIPRU 12.5.6R.
GENPRU 1.2.16GRP
This section also has rules requiring a firm to carry out appropriate stress tests and scenario analyses for the risks it has previously identified and to establish the amount of financial resources needed in each of the circumstances and events considered in carrying out the stress tests and scenario analyses. In the case of a BIPRU firm, the FCA15 will consider as part of its SREP whether the BIPRU firm should hold a capital planning buffer and, in such a case, the amount and
GENPRU 1.2.33RRP
(1) This rule amplifies some of the obligations in the overall Pillar 2 rule.(3) As part of its obligations in respect of market risk, a BIPRU firm must consider whether the value adjustments and provisions taken for positions and portfolios in the trading book enable the firm to sell or hedge out its positions within a short period without incurring material losses under normal market conditions.(4) The processes, strategies and systems required by the overall Pillar 2 rule must
GENPRU 1.2.42RRP
(1) As part of its obligation under the overall Pillar 2 rule, a firm must, for the major sources of risk identified in accordance with GENPRU 1.2.30R (2), carry out stress tests and scenario analyses that are appropriate to the nature, scale and complexity6 of those major sources of risk and to the nature, scale and complexity of the firm's business.666(a) [deleted]66(b) [deleted]66(i) [deleted]66(ii) [deleted]66(iii) [deleted]66(iv) [deleted]66(2) In carrying out the stress
GENPRU 1.2.42AGRP
6In order to comply with the general stress and scenario testing rule, a firm should undertake a broad range of stress tests which reflect a variety of perspectives, including sensitivity analysis, scenario analysis and stress testing on an individual portfolio as well as a firm-wide level.
GENPRU 1.2.42BGRP
6A BIPRU firm with an IRB permission which has any material credit exposures excluded from its IRB models should also include these exposures in its stress and scenario testing to meet its obligations under the general stress and scenario testing rule. A BIPRU firm without an IRB permission,15 should conduct analyses to assess risks to the credit quality of its counterparties, including any protection sellers, considering both on and off-balance sheet exposures.
GENPRU 1.2.42DGRP
6In carrying out the stress tests and scenario analyses required by GENPRU 1.2.42R (1), a firm should also consider any impact of the adverse circumstances on its capital resources. In particular, a firm should consider the capital resources gearing rules where its tier one capital is eroded by the event.
GENPRU 1.2.42EGRP
6A firm should assign adequate resources, including IT systems, to stress testing and scenario analysis, taking into account the stress testing techniques employed, so as to be able to accommodate different and changing stress tests at an appropriate level of granularity.
GENPRU 1.2.43GRP
Stress tests and scenario analyses should be carried out at least annually. A firm should, however, consider whether the nature of the major sources of risks identified by it in accordance with GENPRU 1.2.30R (2) (Main requirement relating to risk processes, strategies and systems) and their possible impact on its financial resources suggest that such tests and analyses should be carried out more frequently. For instance, a sudden change in the economic outlook may prompt a firm
GENPRU 1.2.51RRP
(1) This rule relates to the assessment of the amounts, types and distribution of financial resources, capital resources and internal capital (referred to in this rule as "resources") under the overall Pillar 2 rule as applied on a consolidated basis and to the assessment of diversification effects as referred to in GENPRU 1.2.37R (2) as applied on a consolidated basis.(2) A firm must be able to explain how it has aggregated the risks referred to in the overall Pillar 2 rule and
GENPRU 1.2.60RRP
A firm must make a written record of the assessments required under this section. These assessments include assessments carried out on a consolidated basis and on a solo basis. In particular it must make a written record of:(1) the major sources of risk identified in accordance with GENPRU 1.2.30R (2) (Main requirement relating to risk processes, strategies and systems);(2) how it intends to deal with those risks; and(3) details of the stress tests and scenario analyses carried
GENPRU 1.2.63GRP
The general stress and scenario testing rule requires a firm to carry out stress tests and scenario analyses as part of its obligations under the overall Pillar 2 rule. 6Both stress tests and scenario analyses are 6undertaken by a firm to further a better understanding of the vulnerabilities that it faces under adverse 6conditions. They are based on the analysis of the impact of a range of events of varying nature, severity and duration6. These events can be financial, operational
GENPRU 1.2.64GRP
Stress testing typically refers to shifting the values of individual parameters that affect the financial position of a firm and determining the effect on the firm's financial position.
GENPRU 1.2.66GRP
There are three broad purposes of stress testing and scenario analysis. Firstly, it can be used as a means of quantifying how much capital might be absorbed if an adverse event or events occurred. As such it represents a simple ‘what if’ approach to estimating exposure to risks. This might be a proportionate approach to risk management for an unsophisticated business. Secondly, it can be used to provide a check on the outputs and accuracy of risk models; particularly, in identifying
GENPRU 1.2.68GRP
Subject to GENPRU 1.2.76 G, the purpose of stress tests and scenario analyses under the general stress and scenario testing rule is to test the adequacy of overall financial resources. Scenarios need only be identified, and their impact assessed, in so far as this facilitates that purpose. In particular, the nature, depth and detail of the analysis depend, in part, upon the firm's capital strength and the robustness of its risk prevention and risk mitigation measures.
GENPRU 1.2.69GRP
Both stress testing and scenario analyses are forward-looking analysis techniques, which seek to anticipate possible losses that might occur if an identified risk crystallises. In applying them, a firm should decide how far forward to look. This should depend upon:(1) how quickly it would be able to identify events or changes in circumstances that might lead to a risk crystallising resulting in a loss; and(2) after it has identified the event or circumstance, how quickly and effectively
GENPRU 1.2.70GRP
Where a firm is exposed to market risk, the6 time horizon over which stress tests and scenario analyses 6should be carried out will 6depend on, among other things,6 the maturity and liquidity of the positions stressed. For example, for the market risk arising from the holding of investments, this will 6depend upon:6666(1) the extent to which there is a regular, open and transparent market in those assets, which would allow fluctuations in the value of the investment to be more
GENPRU 1.2.73AGRP
(1) 6In identifying an appropriate range of adverse circumstances and events in accordance with GENPRU 1.2.42R (2):(a) a firm will need to consider the cycles it is most exposed to and whether these are general economic cycles or specific to particular markets, sectors or industries;(b) for the purposes of GENPRU 1.2.42R (2)(a), the amplitude and duration of the relevant cycle should include a severe downturn scenario based on forward looking hypothetical events, calibrated against
GENPRU 1.2.75GRP
(1) [deleted]66(2) Stress and scenario analyses should, in the first instance, be aligned with the risk appetite of the firm, as well as the nature, scale and complexity of its business and of the risks that it bears. The6 calibration of the 6stress and scenario analyses should be reconciled to a clear statement setting out the premise upon which the firm's internal capital assessment under the overall Pillar 2 rule is based.66(3) [deleted]66(4) In identifying adverse circumstances
GENPRU 1.2.76GRP
A firm should use the results of its stress testing and scenario analysis not only to assess capital needs, but also to decide if measures should be put in place to minimise the adverse effect on the firm if the risk covered by the stress or scenario test actually materialises. Such measures might be a contingency plan or might be more concrete risk mitigation steps.
GENPRU 1.2.83AGRP
6A firm is expected to determine where the scope of any stress test impacts upon its pension obligation risk and estimate how the relevant measure of pension obligation risk will change in the scenario in question. For example, in carrying out stress tests under GENPRU 1.2.42 R a firm must consider how a stress scenario, such as an economic recession, would impact on the firm's current obligations towards its pension scheme and any potential increase in those obligations. Risks
GENPRU 1.2.88GRP
6A firm should include in the written record referred to in GENPRU 1.2.60 R a description of the broad business strategy of the UK consolidation group or the non-EEA sub-group of which it is a member, the group’s view of its principal risks and its approach to measuring, managing and controlling the risks. This description should include the role of stress testing, scenario analysis and contingency planning in managing risk at the solo and consolidated level.14
GENPRU 1.2.90GRP
6In performing stress tests and scenario analyses, a firm should take into account the risk that its group may have to bring back on to its consolidated balance sheet the assets and liabilities of off-balance sheet entities as a result of reputational contagion, notwithstanding the appearance of legal risk transfer.
GENPRU 1.2.91GRP
6A firm should carry out stress tests and scenario analyses to a degree of sophistication which is commensurate with the complexity of its group and the nature of its group risk.
BIPRU 7.10.2GRP
BIPRU 7.10 provides details of when the appropriate regulator expects to allow a firm to use a VaR model (value at risk model) for the purpose of calculating part or all of its PRR. It introduces the concept of a VaR model, the methodology behind it and the link to the standard market risk PRR rules. It then goes on to detail the application and review process. The bulk of BIPRU 7.10 specifies the model standards and risk management standards that firms will be required to meet
BIPRU 7.10.8GRP
BIPRU 7.10 sets out the minimum standards that the appropriate regulator expects firms to meet before granting a VaR model permission. The appropriate regulator will not grant a VaR model permission unless it is satisfied that the requirements of BIPRU 7.10 are met and it is satisfied about the procedures in place at a firm to calculate the model PRR. In particular the appropriate regulator will not normally grant a VaR model permission unless it is satisfied about the quality
BIPRU 7.10.55NRRP
3A firm must validate its approach to incremental risk charge. In particular, a firm must: (1) validate that its modelling approach for correlations and price changes is appropriate for its portfolio, including the choice and weights of its systematic risk factors;(2) perform a variety of stress tests (not limited to the range of events experienced historically), including sensitivity analysis and scenario analysis, to assess the qualitative and quantitative reasonableness of
BIPRU 7.10.55ZRRP
(1) 3For positions within its correlation trading portfolio in relation to which a firm may use the all price risk measure, a firm must regularly apply a set of specific, predetermined stress scenarios. These stress scenarios must examine the effects of stress to default rates, recovery rates, credit spreads, and correlations on the profit and loss of the correlation trading portfolio.(2) A firm must apply the stress scenarios in (1) at least weekly and report the results to the
3If the results of the stress tests carried out in accordance with BIPRU 7.10.55Z R indicate a material shortfall in the amount of capital required under the all price risk measure, a firm must notify the appropriate regulator of this circumstance by no later than two business days after the business day on which the material shortfall occurred.
BIPRU 7.10.72RRP
(1) A firm must frequently conduct a rigorous programme of stress testing. The results of these tests must be reviewed by senior management and reflected in the policies and limits the firm sets.(2) The programme must particularly address:(a) concentration risk;(b) illiquidity of markets in stressed market conditions;(c) one way markets;(d) event and jump to default risks;(e) non linearity of products;(f) deep out of the money positions;(g) positions subject to the gapping of
BIPRU 7.10.73GRP
The stress testing under BIPRU 7.10.72R should be taken into account under the overall Pillar 2 rule.
BIPRU 7.10.73AGRP
2The firm's stress testing programme should be comprehensive in terms of both risk and firm coverage, and appropriate to the size and complexity of trading bookpositions held.
BIPRU 7.10.81GRP
In assessing whether the VaR model is implemented with integrity as described in BIPRU 7.10.58R (Stress testing), the appropriate regulator will consider in particular the information technology systems used to run the model and associated calculations. The assessment may include:(1) feeder systems; risk aggregation systems; time series databases; the VaR model system; stress testing system; the backtesting system including profit and loss cleaning systems where appropriate; data
BIPRU 7.10.84GRP
Stress testing is a way of identifying the risk to a firm posed by a breakdown of model assumptions or by low-probability events. Where stress tests reveal unacceptable vulnerability to a given set of circumstances, a firm should take prompt steps to manage those risks appropriately, for example by hedging against the outcome or reducing the size of the firm'sexposure.
BIPRU 7.10.85RRP
A firm must have the capacity to run daily stress tests.
BIPRU 7.10.86RRP
Stress testing must involve identifying market scenarios or other low probability events in all types of risks that generate the greatest losses on a firm's portfolio.
BIPRU 7.10.88RRP
Stress testing must capture non-linear effects.
BIPRU 7.10.89RRP
A firm must have procedures to assess and respond to the results produced from stress testing. In particular, stress testing results must be:(1) used to evaluate its capacity to absorb such losses or identify steps to be taken to reduce risk; and(2) communicated routinely to senior management and periodically to the governing body.
BIPRU 7.10.90GRP
A firm may want to conduct the more complex stress tests at longer intervals or on an ad hoc basis.
BIPRU 7.10.129RRP
A firm must, no later than the number of business days after the end of each quarter specified in the VaR model permission for this purpose, submit, in respect of that quarter, a report to the appropriate regulator about the operation of the VaR model, the systems and controls relating to it and any changes to the VaR model and those systems and controls. Each report must outline as a minimum the following information in respect of that quarter:(1) methodological changes and developments
BIPRU 12.4.1RRP
In order to ensure compliance with the overall liquidity adequacy rule and with BIPRU 12.3.4R and BIPRU 12.4.-1 R, a firm must:(1) conduct on a regular basis appropriate stress tests so as to:(a) identify sources of potential liquidity strain;(b) ensure that current liquidity exposures continue to conform to the liquidity risk tolerance established by that firm'sgoverning body; and(c) identify the effects on that firm's assumptions about pricing; and(2) analyse the separate and
BIPRU 12.4.2RRP
In accordance with BIPRU 12.3.11R, BIPRU 12.4.-2 R and BIPRU 12.4.-1 R,2 a firm must ensure that its governing body reviews regularly the stresses and scenarios tested to ensure that their nature and severity remain appropriate and relevant to that firm.
BIPRU 12.4.3GRP
Consistent with BIPRU 12.3.5R, the expects that the extent and frequency of such testing, as well as the degree of regularity of governing body review under BIPRU 12.4.2R, should be proportionate to the nature scale and complexity of a firm's activities, as well as to the size of its liquidity risk exposures. Consistent with the appropriate regulator's statutory objectives under the Act, in assessing the adequacy of a firm's stress testing arrangements (including their frequency
BIPRU 12.4.4GRP
For the purposes of BIPRU 12.4.2R, a review should take into account:(1) changes in market conditions;(2) changes in the nature, scale or complexity of the firm's business model and activities; and(3) the firm's practical experience in periods of stress.
BIPRU 12.4.5ARRP
2A firm must consider the potential impact of institution-specific, market-wide and combined alternative scenarios. Different time periods4and varying degrees of stressed conditions must be considered.42[Note: article 86(9) of the CRD]4
BIPRU 12.4.6GRP
The appropriate regulator expects every firm, including a firm with an apparently strong liquidity profile, to consider the potential impact of severe stress scenarios.
BIPRU 12.4.7GRP
In conducting its stress testing, a firm should also, where relevant, consider the impact of its chosen stresses on the appropriateness of its assumptions relating to:(1) correlations between funding markets;(2) the effectiveness of diversification across its chosen sources of funding;(3) additional margin calls and collateral requirements;(4) contingent claims, including potential draws on committed lines extended to third parties or to other entities in that firm'sgroup;(5)
BIPRU 12.4.8ERP
(1) A firm should ensure that the results of its stress tests are:(a) reviewed by its senior managers;(b) reported to that firm'sgoverning body, specifically highlighting any vulnerabilities identified and proposing appropriate remedial action;(c) reflected in the processes, strategies and systems established in accordance with BIPRU 12.3.4R;(d) used to develop effective contingency funding plans;(e) integrated into that firm's business planning process and day-to-day risk management;
BIPRU 12.4.9RRP
A firm must ensure that the results of its stress tests are reported to the appropriate regulator in a timely manner.
BIPRU 12.4.12GRP
A contingency funding plan sets out a firm's strategies for addressing liquidity shortfalls in emergency situations. Its aim should be to ensure that, in each of the stresses required by BIPRU 12.4.1R, it would still have sufficient liquidity resources to ensure that it can meet its liabilities as they fall due.
BIPRU 12.4.13RRP
A firm must ensure that its contingency funding plan:(1) outlines strategies, policies and plans to manage a range of stresses;(2) establishes a clear allocation of roles and clear lines of management responsibility;(3) is formally documented;(4) includes clear invocation and escalation procedures;(5) is regularly tested and updated to ensure that it remains operationally robust;(6) outlines how that firm will meet time-critical payments on an intra-day basis in circumstances
BIPRU 2.2.5GRP
The obligation to conduct an ICAAP, includes requirements on a firm to:(1) carry out regularly assessments of the amounts, types and distribution of financial resources, capital resources and internal capital that it considers adequate to cover the nature and level of the risks to which it is or might be exposed (GENPRU 1.2.30 R to GENPRU 1.2.41 G (the overall Pillar 2 rule and related rules);(2) identify the major sources of risk to its ability to meet its liabilities as they
BIPRU 2.2.8GRP
The appropriate regulator will review a firm'sICAAP, including the results of the firm's stress tests carried out under GENPRU and BIPRU, as part of its SREP. Provided that the appropriate regulator is satisfied with the appropriateness of a firm's capital assessment, the appropriate regulator will take into account that firm'sICAAP and stress tests in its SREP. More material on stress tests for a firm with an IRB permission can be found in BIPRU 2.2.41 R to BIPRU 2.2.45 G.44
BIPRU 2.2.12AGRP
4As part of its SREP, the appropriate regulator will also consider whether a firm should hold a capital planning buffer and, in that case, the amount and quality of such capital planning buffer. In making these assessments, the appropriate regulator will have regard to the nature, scale and complexity of a firm's business and of the major sources of risks relevant to such business as referred to in the general stress and scenario testing rule. Accordingly, a firm's capital planning
BIPRU 2.2.19BGRP
4For the purposes of BIPRU 2.2.19A G, BIPRU 2.2.17 G to BIPRU 2.2.19 G apply as they apply to individual capital guidance. References in those provisions to individual capital guidance or guidance should be read as if they were references to capital planning buffer. In relation to BIPRU 2.2.19G (3) and GENPRU 1.2.59 R, where the general stress and scenario testing rule, as part of the ICAAP rules, applies to a firm on a consolidated basis, the appropriate regulator may notify
BIPRU 2.2.25GRP
(1) This paragraph applies to a small3firm whose activities are simple and primarily not credit-related.3(2) In carrying out its ICAAP it could:(a) identify and consider that firm's largest losses over the last 3 to 5 years and whether those losses are likely to recur;(b) prepare a short list of the most significant risks to which that firm is exposed;(c) consider how that firm would act, and the amount of capital that would be absorbed, in the event that each of the risks identified
BIPRU 2.2.26GRP
In relation to a firm whose activities are moderately complex, in carrying out its ICAAP, BIPRU 2.2.25 G (3) to (4) apply. In addition, it could:(1) having consulted the management in each major business line, prepare a comprehensive list of the major risks to which the business is exposed;(2) estimate, with the aid of historical data, where available, the range and distribution of possible losses which might arise from each of those risks and consider using shock stress tests
BIPRU 2.2.27GRP
(1) This paragraph applies to a proportional ICAAP in the case of a firm whose activities are complex.(2) A proportional approach to that firm'sICAAP should cover the matters identified in BIPRU 2.2.26 G, but is likely also to involve the use of models, most of which will be integrated into its day-to-day management and operation.(3) Models of the sort referred to in (2) may be linked so as to generate an overall estimate of the amount of capital that a firm considers appropriate
BIPRU 2.2.30GRP
A firm should assess its exposure to changes in interest rates, in particular risks arising from the effect of interest rate changes on non-trading book activities that are not captured by the CRR. In doing so, a firm may wish to use stress tests to determine the impact on its balance sheet of a change in market conditions.
BIPRU 2.2.41RRP
A firm with an IRB permission must ensure that there is no significant risk that it will not be able to meet its capital resource requirements for credit risk under GENPRU 2.1 (Calculation of capital resources requirements) at all times throughout an economic cycle, including the capital resources requirements for credit risk indicated by any stress test carried out under BIPRU 4.3.39 R to BIPRU 4.3.40 R (Stress tests used in assessment of capital adequacy for a firm with an IRB
BIPRU 2.2.45GRP
The countervailing factors and off-setting actions that a firm may rely on as referred to in BIPRU 2.2.44 G include, but are not limited to, projected balance sheet shrinkage, growth in capital resources resulting from retained profits between the date of the stress test and the projected start of the economic downturn, the possibility of raising new capital in a downturn, the ability to reduce dividend payments or other distributions, and the ability to allocate capital from
BIPRU 2.2.48GRP
(1) 66BIPRU 2.2.61 G to BIPRU 2.2.70 G set out guidance for:(a) 6[deleted]6(b) an asset management firm; and(c) a securities firm;whose activities are either simple or moderately complex.(2) BIPRU 2.2.49 G to BIPRU 2.2.70 G provide examples of the sorts of risks which such a firm might typically face and of stress tests or scenario analyses which it might carry out as part of its ICAAP.(3) The material on securities firms is also relevant to a commoditiesfirm.
IFPRU 2.3.4GRP
The obligation to conduct an ICAAP includes requirements on a firm to: (1) carry out regularly assessments of the amounts, types and distribution of financial resources, own funds and internal capital that it considers adequate to cover the nature and level of the risks to which it is or might be exposed (IFPRU 2.2.1 R to IFPRU 2.2.6 G (the overall Pillar 2 rule and related rules)); (2) identify the major sources of risk to its ability to meet its liabilities as they fall due
IFPRU 2.3.7GRP
The FCA will review a firm'sICAAP, including the results of the firm's stress tests carried out under IFPRU and the EUCRR, as part of its SREP. Provided that the FCA is satisfied with the appropriateness of a firm's capital assessment, the FCA will take into account that firm'sICAAP and stress tests in its SREP. More material on stress tests for a firm with an IRB permission can be found in IFPRU 2.3.50 R to IFPRU 2.3.54 G.11
IFPRU 2.3.12GRP
(1) As part of its SREP, the FCA will also consider whether a firm should hold a capital planning buffer and the amount and quality of such capital planning buffer. 2(2) In making these assessments, the FCA will have regard to the nature, scale and complexity of a firm's business and of the major sources of risks relevant to such business as referred to in the general stress and scenario testing rule and SYSC 20 (Reverse stress testing), and the extent to which the firm has used
IFPRU 2.3.22GRP
For the purposes of IFPRU 2.3.21 G, 1IFPRU 2.3.20 G1 applies as it applies to individual capital guidance. References in those provisions to individual capital guidance should be read as if they were references to capital planning buffer. In relation toIFPRU 2.2.62 R, where the general stress and scenario testing rule or SYSC 20 (Reverse stress testing), as part of the ICAAPrules, applies to a firm on a consolidated basis, the FCA may notify the firm that it should hold a group
IFPRU 2.3.34GRP
(1) This paragraph applies to a firm that is not a significant IFPRU firm (see IFPRU 1.2.3 R) whose activities are simple and primarily not credit-related.(2) In carrying out its ICAAP it could: (a) identify and consider that firm's largest losses over the last three to five years and whether those losses are likely to recur;(b) prepare a short list of the most significant risks to which that firm is exposed;(c) consider how that firm would act, and the amount of capital that
IFPRU 2.3.36GRP
(1) This paragraph applies to a proportional ICAAP in the case of a firm that is a significant IFPRU firm (see IFPRU 1.2.3 R) whose activities are complex.(2) A proportional approach to that firm'sICAAP should cover the matters identified in IFPRU 2.3.34 G and IFPRU 2.3.35 G, but is likely also to involve the use of models, most of which will be integrated into its day-to-day management and operation.(3) Models of the kind referred to in (2) may be linked to generate an overall
IFPRU 2.3.39GRP
A firm should assess its exposure to changes in interest rates, particularly risks arising from the effect of interest-rate changes on non-trading book activities that are not captured by the own funds requirements. In doing so, a firm may wish to use stress tests to determine the impact on its balance sheet of a change in market conditions.
IFPRU 2.3.50RRP
A firm with an IRB permission must ensure that there is no significant risk of it being unable to meet its own funds requirements for credit risk under Part Three, Title II of the EU CRR (Capital requirements for credit risk) at all times throughout an economic cycle, including the own funds requirements for credit risk indicated by any stress test carried out under article 177 of the EU CRR (Stress tests used in assessment of capital adequacy for a firm with an IRB permission)
IFPRU 2.3.53GRP
If a firm's current available own funds are less than the own funds requirements indicated by the stress test, that does not necessarily mean there is a breach of IFPRU 2.3.50 R. The firm may wish to set out any countervailing effects and off-setting actions that can be demonstrated to the satisfaction of the FCA as being likely to reduce that difference. The FCA is only likely to consider a demonstration of such actions as credible if those actions are set out in a capital management
IFPRU 2.3.54GRP
The countervailing factors and off-setting actions that a firm may rely on as referred to in IFPRU 2.3.53 G include, but are not limited to, projected balance sheet shrinkage, growth in own funds resulting from retained profits between the date of the stress test and the projected start of the economic downturn, the possibility of raising new capital in a downturn, the ability to reduce dividend payments or other distributions, and the ability to allocate capital from other risks
IFPRU 2.3.57GRP
(1) IFPRU 2.3.58 G to IFPRU 2.3.67 G set out guidance for:(a) an asset management firm; and(b) a securities firm; (2) IFPRU 2.3.58 G to IFPRU 2.3.67 G provide examples of the sorts of risks which such a firm might typically face and of stress tests or scenario analyses which it might carry out as part of its ICAAP.(3) The material on securities firms is also relevant to a commodities firm.
MIPRU 4.2D.8RRP
A firm must consider alternative scenarios in which its liquidity position could be impacted. The consideration of alternative scenarios must include and deal with off-balance sheet items and other contingent liabilities, including those of securitisation special purpose entities (SSPEs) or other special purpose entities, in relation to which the firm acts as sponsor or provides material liquidity support. These scenarios must be incorporated into the stress testing under MIPRU
MIPRU 4.2D.9RRP
In order to ensure compliance with MIPRU 4.2D.2 R, a firm must:(1) conduct on a regular basis appropriate stress tests so as to:(a) identify sources of potential liquidity strain; and(b) ensure that the risks of current liquidity exposures can be adequately managed; and(2) analyse the separate and combined impact of possible future liquidity stresses on its:(a) cash flows;(b) liquidity position; and(c) solvency; and(3) make, as soon as is practicable after a test has been performed,
MIPRU 4.2D.10RRP
A firm must ensure that its governing body reviews regularly the stresses and scenarios tested and the assumptions underlying the funding position of the firm to ensure that their nature and severity remain appropriate and relevant to it.
MIPRU 4.2D.11GRP
For the purpose of MIPRU 4.2D.10 R a review should take into account:(1) changes in market conditions;(2) changes in funding sources and inflows;(3) changes in the nature, scale or complexity of the firm's business model and activities; and(4) the firm's practical experience in periods of stress.
MIPRU 4.2D.13RRP
(1) A firm must have in place contingency funding plans setting out adequate strategies and proper implementation measures in order to address potential liquidity shortfalls. (2) The contingency funding plans must be: (a) in writing;(b) approved by the firm'sgoverning body;(c) regularly tested; and(d) updated on the basis of the outcome of the stress tests, testing alternative scenarios set out in MIPRU 4.2D.8 R.
BIPRU 7.1.17RRP
3A firm must conduct a regular programme of stress testing and scenario analysis of its trading bookpositions, both at the trading desk level and on a firm-wide basis. The results of these tests must be reviewed by senior management and reflected in the policies and limits the firm sets.
BIPRU 7.1.17AGRP
3The firm's stress testing programme should be comprehensive in terms of both risk and firm coverage, and appropriate to the size and complexity of trading bookpositions held.
BIPRU 7.1.18RRP
3In carrying out the stress tests and scenario analyses required by BIPRU 7.1.17 R, a firm must incorporate and take into account any other relevant stress tests and scenario analyses that it is required to carry out under any other provision of the Handbook, and in particular under BIPRU 7.10.72 R where the firm has a VaR model permission.
BIPRU 7.1.19GRP
3This paragraph gives guidance in relation to the stress testing programme that a firm must carry out in relation to its trading bookpositions.(1) The frequency of the stress testing of trading bookpositions should be determined by the nature of the positions.(2) The stress testing should include shocks which reflect the nature of the portfolio and the time it could take to hedge out or manage risks under severe market conditions.(3) The firm should have procedures in place to
BIPRU 7.1.20GRP
3The stress testing and scenario analysis under BIPRU 7.1.17 R should be taken into account under the overall Pillar 2 rule.
BIPRU 12.3.2GRP
BIPRU 12.4 contains further rules and guidance on stress testing and contingency funding plans. These are both extensions of the overarching systems and controls provisions in BIPRU 12.3. In formulating the rules and guidance in these two sections, the appropriate regulator has taken account of the Principles for Sound Liquidity Management and Supervision dated September 2008 issued by the Basel Committee on Banking Supervision. It is intended that the content of BIPRU 12.3 and
BIPRU 12.3.3GRP
BIPRU 12.5.4R provides that, in relation to a standard ILAS BIPRU firm, it must include in its ILAA an assessment of its compliance with the standards set out in BIPRU 12.3and BIPRU 12.4, including the results of the stress tests required by the rules in BIPRU 12.4. A simplified ILAS BIPRU firm is not subject to BIPRU 12.5 and consequently it is not required to prepare an ILAA. Instead, the rules in BIPRU 12.6 provide that such a firm is to carry out an ILSA, being alone an assessment
BIPRU 12.3.15ERP
(1) In relation to all significant business activities, a firm should ensure that it accurately quantifies liquidity costs, benefits and risks and fully incorporates them into:(a) product pricing;(b) performance measurement and incentives; and(c) the approval process for new products.(2) For the purposes of (1), a firm should ensure that it: (a) includes significant business activities whether or not they are accounted for on-balance sheet; and(b) carries out the exercise of quantification
BIPRU 12.3.19RRP
For the purposes of BIPRU 12.3.17R, a firm must ensure that:(1) it is able to meet its payment and settlement obligations on a timely basis under both normal financial conditions and under the stresses required by BIPRU 12.4.1R; and(2) its arrangements for the management of intra-day liquidity enable it to identify and prioritise the most time-critical payment and settlement obligations.
BIPRU 12.3.24GRP
For the purposes of BIPRU 12.3.23R (8) and (9), a firm should take into account the impact of the stresses that it conducts under BIPRU 12.4.1R on the requirements which may be imposed on the provision of its assets as collateral (for example, haircuts) and also the availability of funds from private counterparties during such periods of stress.
MIPRU 4.2BA.12RRP
Stress testing: the firm must carry out regular stress testing which takes into account: (1) the firm-wide impact of securitisation activities and exposures in stressed market conditions; and(2) the implications for other sources of risk including, but not limited to, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk.
MIPRU 4.2BA.13GRP
Stress testing of securitisation activities should take into account both existing securitisations and pipeline transactions, as there is a risk that the latter would not be completed in a stressed market scenario.
MIPRU 4.2BA.54RRP
A firm must ensure that investors have access to all materially relevant data determined as at the date of the securitisation and, where appropriate due to the nature of the securitisation, thereafter. These data must include:(1) the credit quality, performance, cashflows and supporting collateral of the securitisation exposures; and(2) information necessary to conduct comprehensive and well-informed stress tests on the cashflows and collateral values supporting the securitisation
BIPRU 2.3.4GRP
BIPRU 2.3 sets out more detail on how the systems and controls requirements in SYSC1 and GENPRU 1.2.30 R (Processes, strategies and systems for risks) and the requirements about stress and scenario testing in GENPRU 1.2.36 R apply to interest rate risk in the non-trading book.
BIPRU 2.3.7RRP
(1) As part of its obligations under GENPRU 1.2.30 R (Processes, strategies and systems for risks) and GENPRU 1.2.36 R (Stress and scenario tests) a firm must carry out an evaluation of its exposure to the interest rate risk arising from its non-trading activities.(2) The evaluation under (1) must cover the effect of a sudden and unexpected parallel change in interest rates of 200 basis points in both directions.(3) A firm must immediately notify the appropriate regulator if any
BIPRU 2.3.12RRP
(1) A firm must carry out the evaluations required by BIPRU 2.3.7 R as frequently as necessary for it to be reasonably satisfied that it has at all times a sufficient understanding of the degree to which it is exposed to the risks referred to in that rule and the nature of that exposure. In any case it must carry out those evaluations no less frequently than required by (2) or (3).(2) The minimum frequency of the evaluation in BIPRU 2.3.7 R (1) is once each year.(3) The minimum
BIPRU 4.3.14RRP
Internal ratings-based analysis of the firm's credit risk profile must be an essential part of the management reporting required under BIPRU 4.3.9 R, BIPRU 4.3.11 R and BIPRU 4.3.13 R. Reporting must include at least risk profile by grade, migration across grades, estimation of the relevant parameters per grade, and comparison of realised default rates and, to the extent that own estimates are used, of realised LGDs and realised conversion factors against expectations and stress-test
BIPRU 4.3.39RRP
A firm must have in place sound stress testing processes for use in the assessment of its capital adequacy. Stress testing must involve identifying possible events or future changes in economic conditions that could have unfavourable effects on the firm's credit exposures and assessment of the firm's ability to withstand such changes.[Note:BCD Annex VII Part 4 point 40]
BIPRU 4.3.39AGRP
4The appropriate regulator expects that firms will routinely make use of stress testing and scenario analysis as a tool in the calibration and/or validation of their IRB approach parameters in order to increase the accuracy or, at least, the conservatism of the estimates. Stress testing should include a thorough exploration of various outturns different to the firm's normal expectations in order to give the firm a clear view of the potential for the forward-looking estimate to
BIPRU 4.3.40RRP
(1) A firm must regularly perform a credit risk stress test to assess the effect of certain specific conditions on its total capital requirements for credit risk. The test to be employed must be one chosen by the firm. The test to be employed must be meaningful and reasonably conservative. Stressed portfolios must contain the vast majority of a firm's total exposures covered by the IRB approach.(2) The stress test must be designed to assess the firm's ability to meet its capital
BIPRU 4.3.41GRP
To the extent that the economic conditions assumed in the stress tests required under BIPRU 4.3.39 R or BIPRU 4.3.40 R coincide with the conditions assumed in the production of economic downturn LGDs (see BIPRU 4.3.103 R), the LGDs to be used might be expected to be similar.
GENPRU 2.2.69FGRP
(1) 8In relation to the cancellation or deferral of the payment of a coupon in accordance with GENPRU 2.2.64R (4) and GENPRU 2.2.64R (5), GENPRU 2.2.68A R, or GENPRU 2.2.69B R, the FCA18 expects that situations where a coupon may need to be cancelled or deferred will be resolved through analysis and discussion between the firm and the FCA18. If the FCA18 and the firm do not agree on the cancellation or deferral of the payment of a coupon, then the FCA18 may consider using its
GENPRU 2.2.74AGRP
8The FCA18 considers that, in order to comply with GENPRU 2.2.74 R, the firm should, at a minimum, provide the FCA18 with the following information:(1) a comprehensive explanation of the rationale for the redemption;(2) the firm's financial and solvency position before and after the redemption, in particular whether that redemption, or other foreseeable internal and external events or circumstances, may increase the risk of the firm breaching its capital resources requirement;(3)
GENPRU 2.2.79GRRP
8A BIPRU firm must not purchase a tier one instrument in accordance with GENPRU 2.2.79A R unless it has notified the FCA18 of its intention at least one month before it becomes committed to doing so. When giving notice, the firm must provide details of its position after the purchase in order to show how, over an appropriate timescale, adequately stressed, and without planned recourse to the capital markets, it will:(1) meet its capital resources requirement; and(2) have sufficient
GENPRU 2.2.79HGRP
8The FCA18 considers that:(1) in order to comply with GENPRU 2.2.79G R, the firm should, at a minimum, provide the FCA18 with the following information:(a) a comprehensive explanation of the rationale for the purchase;(b) the firm's financial and solvency position before and after the purchase, in particular whether the purchase, or other foreseeable internal and external events or circumstances, may increase the risk of the firm breaching its capital resources requirement or
INSPRU 7.1.9AGRP
2This section sets out in greater detail the approach to be taken by a firm when carrying out the assessment of capital described in the preceding paragraph. This is the assessment referred to as an individual capital assessment. 3GENPRU 1.2.42 R is a general requirement for a firm to carry out stress tests and scenario analyses taking into account an appropriate range of adverse circumstances and events relevant to the firm's business and risk profile and to estimate the financial
INSPRU 7.1.10GRP
A firm may choose to carry out its ICA in another way than through the use of stress tests and scenario analyses. 3The method should be proportionate to the size and nature of its business.33
INSPRU 7.1.12GRP
The appropriate regulator may ask for the results of these assessments to be provided to it together with a description of the processes by which the assessments have been made, the range of results from each stress test or scenario analysis performed and the main assumptions made. The appropriate regulator may also carry out a more detailed examination of the details of the firm's processes and calculations.
IFPRU 2.1.1RRP
IFPRU 2 applies in the following manner:(1) to an IFPRU investment firm, unless it is an exempt IFPRU commodities firm; and(2) the general stress and scenario testing rule (and related rules and guidance) applies only to a significant IFPRU firm.
IFPRU 2.1.5GRP
This section has rules requiring a firm to carry out appropriate stress tests and scenario analyses for the risks it has previously identified and to establish the amount of financial resources and internal capital needed in each of the circumstances and events considered in that analyses. The FCA will consider, as part of its SREP, whether the firm should hold a capital planning buffer and the amount and quality of that buffer. The capital planning buffer is an amount separate,
SYSC 20.2.1RRP
As part of its business planning and risk management obligations under SYSC, a firm must reverse stress test its business plan; that is, it must carry out stress tests and scenario analyses that test its business plan to failure. To that end, the firm must:(1) identify a range of adverse circumstances which would cause its business plan to become unviable and assess the likelihood that such events could crystallise; and(2) where those tests reveal a risk of business failure that
SYSC 20.2.4GRP
(1) Business plan failure in the context of reverse stress testing should be understood as the point at which the market loses confidence in a firm and this results in the firm no longer being able to carry out its business activities. Examples of this would be the point at which all or a substantial portion of the firm's counterparties are unwilling to continue transacting with it or seek to terminate their contracts, or the point at which the firm's existing shareholders are
BIPRU 13.6.48RRP
(1) A firm must have a routine and rigorous program of stress testing in place as a supplement to the CCR analysis based on the day-to-day output of the firm's risk measurement model.(2) The results of this stress testing must be reviewed periodically by senior management and must be reflected in the CCR policies and limits set by management and the governing body.(3) Where stress tests reveal particular vulnerability to a given set of circumstances, prompt steps must be taken
BIPRU 13.6.56RRP
(1) A firm must have in place sound stress testing processes for use in the assessment of capital adequacy for CCR.(2) These stress measures must be compared with the measure of EPE and considered by the firm as part of the process set out in GENPRU 1.2.42 R.(3) Stress testing must also involve identifying possible events or future changes in economic conditions that could have unfavourable effects on a firm's credit exposures and an assessment of the firm's ability to withstand
BIPRU 13.6.57RRP
(1) A firm must stress test its CCRexposures, including jointly stressing market risk and credit risk factors.(2) In its stress tests of CCR, a firm must consider concentration risk (to a single counterparty or groups of counterparties), correlation risk across market risk and credit risk, and the risk that liquidating the counterparty's positions could move the market.(3) In its stress tests a firm must also consider the impact on its own positions of such market moves and integrate
IFPRU 4.9.1GRP
To be satisfied that the credit risk stress test undertaken by a firm under article 177(2) of the EU CRR is meaningful and considers the effects of severe, but plausible, recession scenarios, the FCA would expect the stress test to be based on an economic cycle that is consistent with IFPRU 2.2.73G(1)(b) (see article 177(2) of the EU CRR)
IFPRU 4.15.1GRP
For purposes of repurchase transactions and securities lending or borrowing transactions, the FCA does not consider that there are any core market participants apart from those entities listed in article 227(3) of the EU CRR.