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Bank of England cancels 2020 stress tests

Bank of England cancels 2020 stress tests

The Bank of England is to cancel the 2020 stress test for the eight major UK banks and building societies, under a package of measures to relive the regulatory burden on firms as they face up to the challenge of maintaining operational resilience during the Coronavirus outbreak.

The action by UK regulatory bodies comes in the wake of a decision by the European Banking Authority to postpone the EU-wide stress test exercise to 2021 to allow banks to focus on and ensure continuity of their core operations, including support for their customers.

In making its decision, the Bank of England says: "The recent 2019 stress test showed that the UK banking system was resilient to deep simultaneous recessions in the UK and global economies that are more severe overall than the global financial crisis, combined with large falls in asset prices and a separate stress of misconduct costs."

A number of important supervisory programmes will also be stalled, including deadlines for responses to the current Bank and PRA consultations on 'Building Operational Resilience: Impact tolerances for important business services' and the PRA consultation on 'Outsourcing and third party risk management'.

The central bank also intends to review its work plans so that non-critical data requests, on-site visits and deadlines can be postponed.

"This will allow supervisory engagement to focus on the most important matters relating to financial stability, the safety and soundness of firms, and protection of policyholders, including the impact of Covid-19," states the Bank. "In doing so, we will continue closely to coordinate our supervisory work on Covid-19, wherever possible, with the FCA and other authorities."

Tim Cant regulation partner at law firm Ashurst says: "The UK regulators are trying to do all they can, reducing capital requirements and postponing stress tests but it is likely more flexibility is required on supervisory capital assessments. BaFIN has indicated that it will show material flexibility in its assessment of credit and market risk. The same approach may be needed in the UK."

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