And third, and finally, we have PS09/20 “Stress and Scenario Testing Feedback on CP08/24 and final rules”. This CP is actually linked to CP03/30 (‘Buffers’),as both emanate from CP08/24 (“Stress and Scenario Testing”) issued in December 2008, and focuses primarily on improvements that the FSA expects to see in a firm’s own stress testing of its ability to meet capital and liquidity requirements in stressed conditions.
Annex 3 sets out the FSA’s expectations regarding stress and scenario testing.
Perhaps the major headache for some firms is the introduction of ‘reverse stress testing’ (basically the testing of a business plan to failure) which will add another new chapter to SYSC – SYSC 20. The (relatively) good news is that it will not come into force until 14 December 2010 but the even better news for BIPRU investment firms is that they are excluded from SYSC 20 if: (a) they manage assets or safeguard and administer investments of under £10bn; or (b) total income from its regulated activities is no more than £250m; or (c) it has assets and liabilities of no more than £2bn (all criteria to apply on a consolidated basis to all BIPRU investment firms in the group). Reference should be made to SYSC 20.1.1R(2) for the precise exclusion parameters.
Elsewhere there are changes to GENPRU 1, largely in the form of guidance, which comes into immediate effect, as is also the case with various chapters of BIPRU. Appendix 1 of the PS shows the final handbook text.