FSA has strengthened its stress testing regime by introducing a new approach to stress testing. The new approach has three main elements:

  • firms' own stress testing;
  • FSA testing of specific firms, which it will carry on regularly for specific high-impact firms and otherwise as appropriate; and
  • simultaneous system-wide stress testing.

FSA has made new rules on this approach, in the Prudential Requirements (Stress Testing) Instrument 2009. Some rules have immediate effect but firms subject to the new reverse stress testing regime have 12 months to incorporate it into their current stress testing methods. The rules amend the Glossary, SYSC (including introducing a new Chapter 20), GENPRU, BIPRU and INSPRU. FSA is also consulting on its approach to capital planning buffers, including some examples of calculation of buffers and draft new text for BIPRU 2. Capital planning is the next stage in FSA's stress testing improvements and it will recommend scenarios to help firms improve planning in 2010. FSA wants comments on its proposals on capital buffers by 31 March.