Organisational and governance arrangements within competent authorities
Competent authorities should establish an effective programme for supervisory stress testing. This programme should be supported by appropriate organisation, governance and IT arrangements ensuring that supervisory stress tests can be conducted with appropriate frequency. The supervisory stress testing programme should support the effective implementation of the supervisory examination programme for individual institutions. The programme should also reflect how the competent authority takes decisions regarding the choice of forms of supervisory stress testing in close connection with the objectives of each exercise.
The governance, organisation and IT arrangements supporting the supervisory stress testing programme should include at least the following:
sufficient human and material resources, data and IT infrastructure to design and conduct supervisory stress tests. In particular, the supervisory stress testing programme should be supported by adequate data and an appropriate methodological approach covering all aspects, including scenarios and assumptions (e.g. templates, guidance, documentation), and ensuring both flexibility and appropriate levels of quality and controls;
a quality assurance process covering stress testing design, development and execution, and the comparability of results across institutions;
the integration of supervisory stress testing into other relevant supervisory processes. Hence, when required and subject to any legal constraints, the organisation should support the internal sharing of information and utilisation of all aspects of the stress testing programme.
As part of governance arrangements, competent authorities should ensure that the supervisory stress testing programme is reviewed regularly, both qualitatively and quantitatively, to ensure that its continued adequacy.
Competent authorities should ensure that they have processes and arrangements in place for an effective dialogue with institutions regarding supervisory stress tests and their outcomes. This dialogue should reflect the intended objectives, be established in particular but not exclusively when supervisory stress tests are run for the purposes of the assessment of institutions’ overall capital adequacy, and be organised within the more general context of the SREP assessments as set out in these guidelines. For the purposes of such a dialogue both at the technical and managerial level, where relevant, the competent authorities should ensure that:
adequate, sufficiently detailed and accurate explanation and guidance is provided to institutions on the application of the methodologies and assumptions used in a bottom-up stress test;
adequate, sufficiently detailed and accurate instructions are given to institutions with regard to the supporting information required by them to be submitted to competent authorities along with the results of the stress tests;
explanation is provided to institutions following discussions, where relevant, of the outcomes of supervisory stress tests that lead to the application of supervisory measures. This should be considered by competent authorities in particular in the context of system-wide stress tests that trigger supervisory measures.
When applying supervisory stress testing to cross-border groups, competent authorities should exchange information and, where feasible, appropriately discuss the process within the colleges of supervisors. In particular, competent authorities should ensure that relevant details on the methodologies, scenarios and major assumptions, as well as the results of supervisory stress tests, especially those aimed at assessing capital or liquidity adequacy, are made available and discussed.
Competent authorities should also identify what information regarding supervisory stress tests and their outcomes may be publicly disclosed, taking into account the intended purposes of the supervisory stress tests. When deciding on the public disclosure of the results or methodologies of supervisory stress tests, competent authorities should consider their own role in the exercise and the approach chosen and also consider the extent of their own analysis that will accompany published results.