ARCHIVED: This Practice Note has been archived and is no longer maintained. This Practice Note provides an introduction to the Bank of England (BoE)’s Climate Biennial Exploratory Scenario (CBES) exercise, launched in June 2021, examining the CBES’s structure, purpose, the scenarios covered and the areas of focus. It also considers the Prudential Regulation Authority (PRA)’s Climate Change Adaptation Report 2021, published in October 2021, BOE’s report on climate-related risks and the regulatory capital frameworks, published in March 2023. Background and introduction The BoE has noted that the financial risks posed by climate change are unprecedented, so building a toolkit to help manage and mitigate them is equally unprecedented. Climate scenario analysis and stress testing is a key part of such a toolkit, allowing for the exploration of impacts and exposures at the level of the financial system under a range of different potential climate pathways. For these reasons, the BoE decided to use its stress testing framework to assess the impact of climate-related risks on the UK financial

PI & Clinical Negligence analysis: The High Court held that an employer may become liable for psychiatric injury arising from occupational stress, where repeated warnings and clear signs of an employee’s inability to cope, make harm reasonably foreseeable. Applying the principles in Sutherland v Hatton and Barber v Somerset CC, the court found that the employer breached its duty by failing to undertake a risk assessment or occupational health referral once concerns about the claimant’s deteriorating condition became apparent. The judgment provides important guidance on foreseeability, evidential requirements in stress-at-work claims, and the need for defendants to adduce clear expert evidence if seeking apportionment on the basis of pre-existing psychiatric vulnerability. Produced in partnership with David Juckes of Hailsham Chambers.

The Prudential Regulation Authority (PRA) has announced the postponement of the launch of the Dynamic General Insurance Stress Test (DyGIST) from the initial timeline to May 2026 intending to reduce the burden on general insurers in 2025 as they prepare to report on the new Solvency UK regulatory returns. It will also allow for more efficient use of PRA resources.

Law360: European Insurance and Occupational Pensions Authority (EIOPA) set out on 7 April 2025 that it will assess how changes in interest rates tied to geopolitical tensions may harm occupational pension funds during its fifth annual stress test on the sector.

The European Banking Authority (EBA) has launched its 2025 EU-wide stress test and released the macroeconomic scenarios. The EBA expects to publish the results of the exercise at the beginning of August 2025. As part of the EBA’s EU-wide stress test, the European Central Bank (ECB) will stress test a total of 96 directly supervised banks in 2025.

The Bank of England (BoE) has published details of its stress test of UK central counterparties (CCPs) for 2025. The exercise is designed to assess the financial resilience of UK CCPs under severe market stress. It focuses on the default of two or more clearing members—with particular emphasis on the two whose default would cause the greatest depletion of CCP resources—through a core Credit Stress Test, complemented by reverse and sensitivity testing. Although a full Liquidity Stress Test is not conducted, the exercise will include a qualitative exploration of liquidity risks. The BoE say that the test will cover all three authorised CCPs (ICE Clear Europe Limited, LCH Limited, and LME Clear Limited), use the end of day on Wednesday 26 March 2025 as the reference date, and rely on data submitted via structured templates. The results will be published in a report in Q4 2025.

The Bank of England (BoE) has published the scenarios for the 2024 desk-based stress test of the UK banking system. The exercise will test the resilience of the system to two hypothetical scenarios, which include severe but plausible combinations of adverse shocks to the UK and global economies.

The question of liability for causing psychiatric illness is a wide topic. Each case will be heavily fact dependent. This Q&A will only set out the broad parameters of the question. The fact that a claimant is in a contractual relationship or is a contractor of the party (such as a public authority) whose negligence may factually be causative of his psychiatric injury does not disapply the rules which apply specially into claims for compensation for adverse psychiatric effects. Claimants in stress cases have usually been the subject of a continuous causative process and are normally considered to be primary victims. Most cases of occupational stress are concerned with an employer's liability to an employee. In this question, it appears that the individual is not employed by the public authority but is in a 'commercial' relationship. The difference is important as all employers have a duty to take reasonable

The Bank of England (BoE) has published the results of its 2024 supervisory stress test (SST) report of UK central counterparties (CCPs). The report found that all UK CCPs remain resilient to severe market stress combined with the default of their two largest clearing members. However, compared to the previous stress test, the CCPs experienced greater losses due to the specific nature of the stress scenario and the distribution of their exposures, including shocks beyond historical levels for some products. Additionally, some CCPs had reduced their pre-funded resources following a period of lower market volatility.

The European Insurance and Occupational Pensions Authority (EIOPA) published the results of its 2024 Insurance Stress Test, assessing European insurers' resilience to economic and financial shocks stemming from a resurgence of geopolitical tensions. The stress test scenario, involving supply-chain disruptions, low growth, and inflation, shows European insurers are well-positioned to handle geopolitical tensions, but they require substantial capital and liquidity buffers, emphasising the need for prudent risk management and close supervision in uncertain times.

The European Central Bank (ECB) is to conduct a cyber resilience stress test on 109 directly supervised banks, with the exercise’s main findings to be communicated in summer 2024. The exercise will assess how banks respond to and recover from a cyberattack, rather than their ability to prevent it. This predominantly qualitative exercise will not have an impact on capital through the Pillar 2 guidance, which is a bank-specific capital recommendation on top of the binding requirements. Rather, the insights gained will be used for the wider supervisory assessment in 2024.

The European Banking Authority (EBA) has published the findings of its peer review on the performance of stress tests by deposit guarantee schemes (DGSs) across the EU. The review assessed how seven national DGSs conducted stress tests against benchmarks derived from the Deposit Guarantee Schemes Directive (2014/49/EU) (DGSD) and the revised EBA Guidelines on stress tests of DGSs. It found that all DGSs have developed effective stress testing programmes, with minor shortcomings. However, only five DGSs fully met all requirements, such as performing mandatory stress tests, increasing the severity and complexity of scenarios, and identifying areas for improvement. The report includes follow-up measures for all EU DGSs and an overview of 194 stress tests conducted from 2021-2024. The EBA plans to conduct another review in two years to ensure recommendations are implemented.