FSA introduces reverse stress testing requirement
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The FSA has tabled new rules that require banks, building societies, insurers and investment firms to carry out reverse stress testing.
Reverse stress testing will sit alongside the current range of stress tests that firms are required to carry out to ensure that firms identify and assess scenarios most likely to cause their current business models to become unviable.
Firms subject to the new reverse stress testing requirement will have 12 months to incorporate reverse stress testing into their current suite of stress tests and risk management tools.
Groups and member firms must carry out their own independent reverse stress testing.
The FSA is also consulting on simplifying its approach to capital planning buffers.
FSA director of prudential policy Paul Sharma says: “Stress and scenario testing should be an important element in firms’ planning and risk management processes. These changes send a clear signal to firms’ senior management that they need to engage in building a robust stress testing infrastructure as an important part of effective risk management, and use that to assess capital needs in a stress.
“Reverse stress testing is a separate, but complementary exercise. It is essential that firms identify what could cause their business to fail and use this information to ensure that the relevant risks are sufficiently well-understood and appropriately managed to secure consumer protection and market confidence.”
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Readers' comments (15)
Incompetent Regulators Awards Team | 11 Dec 2009 1:23 pm
Excuse me but what's this bullsh*t called 'Stress Testing', More management speak by people who know nothing. Why don't they go and get a decent job. This sort of thing drives me mad!!!!!
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SIMON MANSELL | 11 Dec 2009 1:46 pm
FSA QUESTION: It is essential that firms identify what could cause their business to fail and use this information.
IFA ANSWER: 500 hours of degree level study, 60 hour working week, termination threat 2012, TCF, worst depression since WW2 following bank failure (on FSA watch), myriad of FSA ill thought out rules and regulations, retrospective regulation, omnipotent all powerful ombudsman, lack of access to courts or any right of appeal.
Is the regulator the solution or the problem?
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Anonymous | 11 Dec 2009 1:52 pm
We done all that stress testing nonsense and the answer is dead simple.
It's not the economy, clients or banks - it's the FSA and RDR.
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Blair Cann | 11 Dec 2009 2:53 pm
Yes, my immediate thought on reading the article was "Stress? Ah yes,that would be the FSA..." And as for the continued use of this word "robust" can someone please stuff it where the sun doesn't shine? It falls into that category of " I hear what you say", "Going forward" etc
Bring back English
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Anonymous | 11 Dec 2009 3:01 pm
Well said everyone!
The only stress me and my company is under is the FSA themselves, take them out of the equation altogether and my business would be thriving!!!
Here's hoping lol
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Overstressed | 11 Dec 2009 3:07 pm
Simon, It might be obvious that you'll go under but it's important to the FSA (but nobody else)to know whether your demise might actually happen after 475 hours of study, or what for example would be the effect if you worked a 62 hour week, or what if there was a worse depression in 10 years time, in fact please could you think of as many scenarios as you can to stress test yourself into a state of complete paralysis, at which point you will cease to rep[resent a regulatory risk.
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ANN OMYMOUS | 11 Dec 2009 3:20 pm
When is anonymity used so often on these posts. Is it because the users are certain that we live in an open and free country protected under the rule of law or is it because we fear retribution from an institution with Stasi like powers?
Regards
ANN OMYMOUS
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Anonymous | 11 Dec 2009 3:25 pm
More buffoonery from the walking dead FSA.
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Phil Castle | 11 Dec 2009 3:47 pm
If firms have got to forward and back stress test, can I suggest that a simple cashflow forecast by the FSA might have identified before annual fees were due that they might find themselves the odd £20million short and hence amending the levy in advance could have been discussed rather than going overdrawn with the very same banks they failed to supervise adequately!
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Anonymous | 11 Dec 2009 7:34 pm
Why don't you "advisers" show some respect.You'd be the first to complain about the regulator if we had more failures of companies.You like to criticise them over Northern Rock and then launch this sort of ill-considered tirade when they try to prevent further problems.The plain fact is I doubt if the writers know what reverse stress testing is.
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