3. Role of Board and Management
The board of directors and the senior management of the bank are required to play an important role in putting in place a robust stress testing framework. Specifically, they are expected to do, inter alia, the following:
3.1. Board of Directors
i. The board shall have the overall responsibility for the stress testing framework. For this purpose, it will provide the necessary oversight to ensure that the bank has a sound and robust stress testing program in place;
ii. The board (or a relevant committee of the board) shall approve the stress testing policy of the bank and any subsequent revision/updating thereof. Such a policy should broadly define the approach, structure and roles for conducting stress tests. It should also appropriately articulate the stress testing framework adopted by the bank which should be in line with its size, complexity of operations, nature of business activities and risk appetite, and also fully captures its risk profile;
iii. The board shall ensure that the management has devoted adequate resources and created necessary infrastructure for conducting stress tests in an effective manner;
iv. The board shall also ensure that the management has adopted appropriate processes and procedures for making effective use of stress testing as a risk management tool;
v. The Board shall review the major findings of the stress tests and ensure that appropriate remedial actions are being taken by the management to mitigate the identified risks;
vi. The board shall require the management to apprise it from time to time on the effectiveness of the bank’s stress testing framework. If deemed appropriate, the board may also require the management to get the stress testing program independently evaluated by the bank’s internal audit function or by a third-party consultant to be engaged for this purpose.
3.2. Senior Management
i. Senior management shall have the responsibility for designing, developing and implementing an effective stress testing framework. In this regard, it will establish an appropriate organizational structure, deploy qualified human resources, and adopt well-defined processes and procedures for conducting stress tests;
ii. Senior management should put in place necessary infrastructure and IT systems to support the conduct of stress tests. The infrastructure so provided should be adequate to support compilation and processing of data required for conducting stress tests in an effective manner;
iii. Senior management should provide oversight in defining the relevant stress scenarios, selection of methodologies and conduct of the stress tests;
iv. Senior management shall ensure that the results of the stress tests are compiled in a clear and concise manner, and communicated to the board of directors, relevant board and management committees, senior management, relevant business areas and SAMA;
v. Senior management shall prepare adequate action plans for dealing with the findings of the stress tests;
vi. Senior management should periodically assess the effectiveness of the stress testing policy, procedures and framework, and make necessary adjustments there in line with the market developments and changing business environment, and where-ever required seek approval of the board to the proposed changes. ,The ultimate objective should be to ensure the robustness and effectiveness of the bank’s stress testing program;