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Designing Stress Tests for UK Fast-Growing Firms and Fintech

Author

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  • Stavros Pantos

    (University of Reading, School of Law, Foxhill House, Shinfield Road, Whiteknights, Reading RG6 6EP, UK)

Abstract

This paper captures advances in prudential regulation and supervision for challenger banks and fintech in the UK. It presents a critical analysis of the prudential supervisory approaches towards fintech. The focus is placed on fast-growing firms (FGFs), building on the review performed by the Prudential Regulation Authority (PRA) of the Bank of England (BoE) in 2019. Specifically, it comprises a critical examination of the underlying regulatory framework in relation to the robustness of stress testing practices, as part of the review of FGF risk management practices and the weakness identified in the Internal Capital Adequacy Assessment Process (ICAAP). The economic analysis of law comprises the underlying methodology, using economic theory to analyse regulation and its effectiveness regarding fintech regulation and supervision. Recommendations for enhancements towards supervisory practices about the prudential governance and management of FGFs and fintech are included, with advances to the underlying regulatory framework in the UK. Overall, this critical legal research examines the supervisory practices of FGFs and fintech in the UK, under the lens of prudential regulation and risk management approaches, focusing on the design, development and implementation of the stress testing tool and scenario practices.

Suggested Citation

  • Stavros Pantos, 2023. "Designing Stress Tests for UK Fast-Growing Firms and Fintech," Risks, MDPI, vol. 11(2), pages 1-22, January.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:2:p:31-:d:1053073
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    References listed on IDEAS

    as
    1. Eric Brown & Dóra Piroska, 2022. "Governing Fintech and Fintech as Governance: The Regulatory Sandbox, Riskwashing, and Disruptive Social Classification," New Political Economy, Taylor & Francis Journals, vol. 27(1), pages 19-32, January.
    2. Miguel de la Mano & Jorge Padilla, 2018. "Big Tech Banking," Journal of Competition Law and Economics, Oxford University Press, vol. 14(4), pages 494-526.
    3. Kieran Dent & Ben Westwood & Miguel Segoviano, 2016. "Stress testing of banks: an introduction," Bank of England Quarterly Bulletin, Bank of England, vol. 56(3), pages 130-143.
    4. Irina Mnohoghitnei & Simon Scorer & Khushali Shingala & Oliver Thew, 2019. "Embracing the promise of fintech," Bank of England Quarterly Bulletin, Bank of England, vol. 59(1), pages 1-13.
    5. Meyer Aaron & Francisco Rivadeneyra & Samantha Sohal, 2017. "Fintech: Is This Time Different? A Framework for Assessing Risks and Opportunities for Central Banks," Discussion Papers 17-10, Bank of Canada.
    6. Doerr, Sebastian & Gambacorta, Leonardo & Leach, Thomas & Legros, Bertrand & Whyte, David, 2022. "Cyber risk in central banking," CEPR Discussion Papers 17660, Centre for Economic Policy Research.
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