1
Introduction
1.1
This Prudential Regulation Authority (PRA) supervisory statement (SS) sets out the PRA’s expectation as to the model risk management practices firms should adopt when using stress test models. It supports firms’ development and implementation of policies and procedures to identify, manage and control the risks inherent in the use of stress test models.
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1.2
This SS is relevant to PRA authorised banks, building societies and PRA-designated investment firms only. Credit unions are not in scope and there is currently no proposal to extend the principles to insurance and reinsurance firms[1].
Footnotes
- 1. Insurance and reinsurance firms are currently not in scope. Requirements on model management for firms subject to Solvency II are set out in Commission Delegated Regulation (EU) 2015/35 Title I, Chapter VI, and PRA expectations are set out in SS17/16: ‘Solvency II: internal models – assessment, model change and the role of non-executive directors’: www.bankofengland.co.uk/prudential-regulation/publication/2016/solvency2-internal-models-assessment-model-change-and-the-role-of-non-executive-directors-ss.
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1.3
Adopting a proportionate approach, the PRA expects the larger firms that participate in the Bank of England’s (the Bank) annual concurrent stress testing to apply the principles contained in this SS in full, while firms not participating in the Bank’s annual concurrent stress testing should apply the principles on a proportionate basis, taking into account their size, complexity, risk profile and the relevance to them of stress test models.
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1.4
The expectations in this SS will take effect from Friday 1 June 2018.
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