Repeal of Guiding Recommendations No. 2/2015 on Best Practice in the Preparation and Form of Stress Tests of Financial Undertakings

6 October 2025
Ref.: 2509132

Circular no.: 22/2025
To: Financial undertakings and the Association of Companies in Financial Services

Subject: Repeal of guiding recommendations no. 2/2015, on best practice in the preparation and form of stress tests of financial undertakings

The Central Bank of Iceland draws attention to the fact that guiding recommendations no. 2/2015, on best practice in the preparation and form of stress tests of financial undertakings, have been repealed.1

According to the first paragraph of Article 77 a of the Act on Financial Undertakings, no. 161/2002, a financial undertaking shall at all times have at its disposal a reliable risk management system in connection with all of its activities. A financial undertaking shall have in place adequate internal processes to assess the necessary size, composition and internal distribution of the capital base with regard to the risk that the activities entail at any given time, including in stress scenarios, including those that stress tests reveal. The second paragraph of the same Article provides that a financial undertaking shall carry out regular stress tests and document their assumptions and results.

When carrying out stress tests according to Article 77 a of the Act, financial undertakings shall take into account the guidelines of the European Banking Authority (EBA) on stress testing (EBA/GL/2018/04)2 which were adopted in this country with the General Guidelines and Methodology for the supervisory review and evaluation process for financial undertakings in 2019. The Financial Supervisory Authority has relied on the guidelines in supervisory practice and in assessing whether requirements according to the Act on Financial Undertakings are met. Until now, the Financial Supervisory Authority has also, as applicable, taken into account guiding recommendations no. 2/2015.

The EBA guidelines on stress testing are intended to harmonise the implementation of stress tests within the European Economic Area (EEA). They address, among other things, the framework of stress tests, governance and the responsibility of managers, data and data quality, the scope of stress tests, different types of stress tests, the proportionality principle and the use and application of stress tests.

According to the third paragraph of Article 16 of the ESA Regulations,3 which were implemented by Act no. 24/2017, on the European System of Financial Supervision, competent authorities and the relevant supervised entities shall make every effort to comply with the guidelines and general recommendations of the supervisory authorities. The purpose of the guidelines is to establish coordinated, efficient and effective supervisory practice within the European financial system, in addition to ensuring common, uniform and consistent application of legislation within the EEA.

[1] Guiding recommendations no. 2/2015, on best practice in the preparation and form of stress tests of financial undertakings.

[2] Guidelines on institutions’ stress testing (EBA/GL/2018/04).

[3] More specifically Regulations of the European Parliament and of the Council (EU) no. 192-195/2010.

Upon the repeal of guiding recommendations no. 2/2015, financial undertakings shall continue to take into account the EBA guidelines on stress testing which are relied on in supervisory practice and in assessing whether requirements according to the Act on Financial Undertakings are met.

This circular will be published on the Central Bank's website.

Yours faithfully,
CENTRAL BANK OF ICELAND

Björk Sigurgísladóttir
Deputy Governor of Financial Supervision

Gísli Óttarsson
Managing Director
Prudential Supervision