News & Views / Increase in stress testing requirements
30 January 2018

Increase in stress testing requirements

In our latest whitepaper, Seven risk predictions for 2018, we explore which trends lenders are most likely to adopt to protect themselves, consumers and the global economies, whilst also going back to the most important aspect of any business: profitability. Here's our third risk prediction...

#3: Likely increase in stress testing requirements

The seven largest UK banking organisations have been participating in the annual Bank of England Concurrent Stress Test now for 4 years. They are developing appropriate structures to meet more stringent stress testing requirements.

In 2018 with an increased focus on consumer indebtedness it is expected that smaller lenders will need to up their game and assess carefully the suitability of their current ICAAP framework. Increased scrutiny will be placed by the regulators not only on modelling, but also on process and policies around stress testing, with particular attention to senior management and board members and the implications of stress testing for both strategic and capital planning.

For this reason financial institutions must engage in a careful planning and define clearly all the events that need to happen in a successful stress test or ICAAP. The ICAAP is, by definition, an internal process but organisations need to consider if they have the proper setup and resources needed to show the PRA they mean business and are not a risk to the future stability of the UK financial sector.