Prudential Regulation Authority Rulebook

15.1

This Chapter applies to a CRR firm.

15.2

As part of its business planning and risk management obligations, including under the Risk Control Part of the PRA Rulebook, 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. (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. (2) where those tests reveal a risk of business failure that is unacceptably high when considered against the firm's risk appetite or tolerance, adopt effective arrangements, processes, systems or other measures to prevent or mitigate that risk.

15.3

Where the firm is a member of:

1. (1) a UK consolidation group; or
2. (2) a third country sub-group;

it must conduct the reverse stress test on an individual basis as well as on a consolidated basis in relation to the UK consolidation group or the third country sub-group, as the case may be.

15.4

The design and results of a firm's reverse stress test must be documented and reviewed and approved at least annually by the firm's senior management or governing body. A firm must update its reverse stress test more frequently if it is appropriate to do so in the light of substantial changes in the market or in macroeconomic conditions.