Prudential Regulation Authority Rulebook

7.1

A firm must take reasonable steps to ensure the establishment and maintenance of:

(1) a business plan; and

(2) appropriate systems for the management of prudential risk.

7.2

A firm’s business planning must involve the creation and maintenance of specific risk policies that outline a firm’s strategy and objectives for the identification and management of at least its market, credit, liquidity, reinsurance, operational, insurance and group risks and the processes that it intends to adopt to achieve these objectives.

7.3

When establishing and maintaining its business plan and prudential risk management systems, a firm must document:

1. (1) an explanation of its overall business strategy, including its business objectives;
2. (2) a description of, as applicable, its policies towards market, credit (including provisioning), liquidity, operational, insurance and group risks (that is, its risk policies), including its appetite or tolerance for these risks and how it identifies, measures or assesses, monitors and controls these risks;
3. (3) the systems and controls that it intends to use in order to ensure that its business plan and risk policies are implemented correctly;
4. (4) a description of how the firm accounts for assets and liabilities, including the circumstances under which items are netted, included or excluded from the firm’s balance sheet and the methods and assumptions for valuation;
5. (5) appropriate financial projections and the results of its stress testing and scenario analysis;
6. (6) details of, and the justification for, the methods and assumptions used in financial projections and stress testing and scenario analysis; and
7. (7) its procedures to allow managers to monitor the application and effect of its reinsurance programme.

7.4

A firm’s business plan and risk management systems must be effectively communicated so that all employees understand and adhere to the procedures related to their own responsibilities.