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  • Risk Measurement

    • RM-4.1.5

      Investment firm licensees must carry out stress testing to access the resilience of their financial resources to any identified areas of material market risk under reasonably foreseeable circumstances. This stress testing may take into account the rating and geographical spread of its assets, the duration of their maturity relative to the licensee's liabilities and the fluctuation of interest and currency rates.

      Adopted: July 2007

    • RM-4.1.6

      The licensee should consider potential market risk events that may affect its solvency. These include the following:

      (a) Reduced value of equities due to stock market falls etc;
      (b) Variation in interest rates and the effect on the market value of investments;
      (c) A lower level of investment income than planned;
      (d) Inadequate valuation of assets;
      (e) The direct impact on the portfolio of currency devaluation, as well as the effect on related markets and currencies; and
      (f) The extent of any mismatch of assets and liabilities of any type (eg. maturity, currency, market, repricing etc.).
      Adopted: July 2007

    • RM-4.1.7

      Where the licensee considers that the nature of its assets and the matching of its liabilities result in no significant market risk exposure (eg. its investments consist entirely of cash and bank deposits), it will not be expected to carry out stress testing. The CBB will expect it to document the reasons for its decision and be prepared to discuss these during an onsite visit.

      Adopted: July 2007