On 21 June 2021, the Bank of England (BoE) issued a Discussion Paper that sets out a range of proposals and options for the design of a central counterparty (CCP) supervisory stress testing framework.
The Discussion Paper:
- Provides a general introduction to CCPs and their own stress testing, to help set the context and motivation for supervisory stress testing of CCPs.
- Introduces the concept of CCP supervisory stress testing and outlines the BoE’s objectives for CCP supervisory stress testing.
- Considers potential design options for CCP supervisory stress-testing frameworks and how these might help the BoE achieve its objectives for CCP supervisory stress testing.
- Sets out some details on the design of the BoE’s exploratory 2021–22 CCP supervisory stress test.
- Outlines a series of discussion questions on the design of the BoE’s CCP supervisory stress testing regime on which the BoE particularly welcomes feedback.
The BoE will launch its first public CCP supervisory stress test in 2021, concluding in 2022. This exploratory exercise will be used to assess the credit and liquidity resilience of UK CCPs, and will help inform the further development of the BoE’s CCP supervisory stress testing regime. This exercise will be exploratory in nature and feedback to the Discussion Paper will not affect how the BoE undertakes this exercise.
Following the completion of the BoE 2021–22 CCP supervisory stress test, and receipt of feedback to the Discussion Paper, the BoE intends to publish its final CCP supervisory stress testing regime in due course.
The deadline for responding to the Discussion Paper is 17 December 2021.