BANK 9.2.7 Stress testing

(1) A banking business firm must carry out stress tests regularly for a variety of short-term and long-term liquidity stress scenarios (both firm-specific and market-wide, separately and in combination) to identify sources of potential liquidity stress and to ensure that the firm's exposures continue to be in accordance with its liquidity risk tolerance.
(2) The tests must enable the firm to analyse the effect of stress scenarios on its liquidity positions, and on the liquidity positions of individual business lines.
(3) The scenarios and related assumptions must be well documented, and must be reviewed together with the test results. The results, the vulnerabilities found and any resulting actions must be reported to, and discussed with, the firm's governing body and the Regulatory Authority.
(4) The test outcomes must be used to adjust the firm's liquidity management strategy, policies and positions, and to develop effective contingency plans to deal with liquidity stress.
(5) The results of the tests must be integrated into the firm's strategic planning process and its day-to-day risk management practices. The results must be explicitly considered in the setting of internal limits.
(6) The firm must decide how to incorporate the results in assessing and planning for possible funding shortfalls in its contingency funding plan.
Inserted by QFCRA RM/2018-1 (as from 1st May 2018).