The client, a multi-asset bank, who primarily provides execution, clearing and prime brokerage services, requested assistance with the development of the reverse stress.
In order to support the process of the stress test development and its subsequent incorporation in the ICAAP report, Avantage Reply reviewed and assessed the existing approach to the reverse stress test exercise, interpreted relevant regulatory requirements and expectations (such as those stipulated in the FCA Handbook), considered the industry best practices and produced the final document, namely the respective section of the ICAAP report.
The client belatedly realised that its reverse stress-test scenario for the ICAAP was inadequate and had to develop a new approach in a short period of time.
The overall reverse stress testing methodology had to be revised and enhanced, with special attention paid to the definition of the potential points of failure, identification of the material risks and development of the scenarios and assessment of their severity. Additionally, the reverse stress-test had to be consistent with information provided in other sections of the ICAAP report and with the Wind-Down plan.
Avantage Reply provided a team of 2 experts to:
The new reverse stress-test approach was developed and adopted in time to submit the ICAAP before the regulatory deadline.