Prudential Regulation Authority Rulebook

4.1

TWD firms should have TWD capabilities that will enable them to develop and execute the TWD option in a variety of real-life circumstances. TWD firms should use their TWD capabilities to help them to develop and execute their recovery plan and BRP.

4.2

A static plan is unlikely to be sufficient when executing the TWD option, whereas a set of capabilities, supporting the development and execution of the TWD option, will allow senior management and decision-makers to respond to changing real-life circumstances.

4.3

The PRA expects TWD firms to have the following TWD capabilities:

• Information provision and decision-making capabilities: these capabilities enable a TWD firm to produce information and data which is of sufficient granularity and quality to support decision-making before, during, and after a firm-specific and/or market-wide stress.
• Refresh capabilities: these capabilities enable a TWD firm to refresh the information supporting the development and execution of the TWD option in a timely manner. TWD firms should be able to refresh data on their balance sheet (including data on trading book positions at the individual contract, collateral and asset levels), their quantification of wind-down costs, and capital and liquidity projections, within a matter of days (the data refresh). TWD firms should be able to refresh the material components of the TWD option, including changes to assumptions and approximations that inform the TWD option, changes to the modelling or methodology that TWD firms use as part of their information provision and decision-making capabilities, and changes to the factors that make up the TWD scenario, within weeks (the full plan refresh).

4.4

These capabilities are set out in more detail in paragraphs 4.8-4.51. The diagram below depicts how TWD firms’ information provision and decision-making and refresh capabilities support the development and execution of the TWD option, when used alongside scenario testing set out in Chapter 3.

Diagram 1: How TWD capabilities support the development and execution of the TWD option

4.5

The rest of this chapter sets out the PRA’s expectations for:

• developing TWD capabilities based on a full wind-down of trading activities in post-resolution restructuring;
• the TWD capabilities a TWD firm should have;
• further detail on TWD firms’ information provision and decision-making capabilities;
• TWD capabilities being responsive to circumstances;
• how TWD capabilities should be used to meet recovery planning policy; and
• governance of TWD firms’ TWD capabilities.

4.6

TWD firms should develop their TWD capabilities based on having to execute a full wind-down of their trading activities in post-resolution restructuring. This situation may also involve the full wind-down of the legal entity. TWD capabilities developed to deliver a full wind-down of trading activities in post-resolution restructuring should be adaptable to deal with less severe circumstances.

4.7

TWD firms might only identify certain post-resolution restructuring options during the pre-resolution contingency planning phase, or during the resolution itself. Nonetheless, the PRA expects TWD firms to focus on a full wind-down of their trading activities in post-resolution restructuring, such that the TWD firms will have developed TWD capabilities that will be useable in a variety of real-life circumstances.

4.8

TWD firms are expected to be able to provide information to allow senior management, the PRA, and the Bank (as the resolution authority) to make strategic decisions in recovery and resolution. These strategic decisions include changes to the actions, arrangements, and measures the TWD firm would implement when the TWD option is executed in order to reduce risk and leverage, and wind down its trading activities. SS9/17 sets out that firms’ senior management should be able to use and navigate recovery plan (or playbook) quickly and easily, enabling recovery options to be quickly implemented in a stress.^[23]

4.9

A TWD firm’s capital and liquidity projections are the key components of the information TWD firms should be able to provide. Before a TWD firm makes a decision as to whether the TWD option should be executed, these projections inform the TWD firm’s senior management, the PRA, and the Bank of any capital and liquidity shortfalls that are likely to occur throughout the wind-down period, and at what stage of the wind-down these shortfalls are likely to occur.

4.10

These projections may be subject to significant levels of uncertainty, and it would not be proportionate for TWD firms to build and maintain capabilities to fully model a large number of scenarios. TWD firms should focus the modelling of their quantification of wind-down costs, used to determine their capital and liquidity projections, on the TWD scenario, and the actions, arrangements, and measures that the TWD firm would implement under that scenario. TWD firms should be able to account for the potential impact of market price movements throughout the wind-down period on the valuations of trading positions, known as risk-based losses (RBLs, see paragraphs 4.26 and 4.38-4.40).

4.11

TWD firms should also be able to conduct sensitivity analysis to quantify the impact of alternative key assumptions to those assumed under the TWD scenario. TWD firms should be able to use their sensitivity analysis capabilities to set out the upper and lower bounds for TWD firms’ key assumptions so that senior management can understand the range of plausible impacts on TWD firms’ capital and liquidity projections following execution of the TWD option. This sensitivity analysis capability should include an ability to analyse the minimum baseline set of factors included as part of the TWD scenario, among other factors (see paragraphs 3.6-3.15 for more detail).

4.12

For TWD firms’ capital and liquidity projections to improve planning and decision-making throughout the development and execution of the TWD option, TWD firms should be able to base the projections on a reasonable quantification of wind-down costs using data of a sufficient breadth and granularity. This quantification of wind-down costs should be modelled with reference to the most recent available information on the TWD firm’s balance sheet and the TWD scenario. TWD firms should be able to quantify their wind-down costs in the run-up to the execution of their recovery plan; the PRA does not expect TWD firms to constantly refresh their quantification of wind-down costs on an ongoing basis.

4.13

TWD firms should be able to project their exit costs,^[24] operational costs,^[25] capital resource impacts and requirements,^[26] liquidity and funding,^[27] and RBLs from the assumed reference date^[28] of the TWD option through the wind-down period.

4.14

TWD firms should have the methodologies, models, and data management frameworks needed to calculate these projections at an appropriate level of granularity to produce reasonable estimates that aid decision-making in a variety of real-life circumstances. TWD firms should have controls in place to ensure the input data is complete and accurate, with appropriate cross referencing and reconciliation to business-as-usual data sources such as regulatory reporting data. TWD firms should also have a management information system (MIS) to communicate the key quantitative information to internal and external decision-makers in a clear and timely manner.

4.15

The TWD capabilities that TWD firms should have in order to provide a reasonable quantification of wind-down costs are set out in more detail in paragraphs 4.19-4.51 of this chapter.

4.16

The PRA expects TWD firms to be able to refresh information relevant to the TWD option in a timely manner. The timely production of accurate information in a firm-specific and/or market-wide stress supports decision-making by TWD firms, the PRA, and the Bank, as set out in Chapter 3.

4.17

Given potentially rapid changes in TWD firms’ balance sheets and real-life circumstances, TWD firms should be able to update key parts of the TWD option quickly. The inability to do so would reduce the speed of execution and effectiveness of the TWD option. The inability to update relevant information in a timely manner may result in delayed or ill-informed decision-making in the development and execution of the TWD option. Delayed or ill-informed decision-making could negatively impact the safety and soundness of the TWD firm and the UK financial system more generally; the disorderly wind-down of trading activities may stem from TWD firms being forced to sell out hold positions, generating larger losses than would have been the case if the TWD firm had been able to update key parts of the TWD option quickly.

4.18

The PRA’s expectations for TWD firms’ refresh capabilities are set out below:

• The PRA expects TWD firms to be able to refresh data on the net gains and losses with respect to their trading activities (including data on trading book positions at the individual contract, collateral and asset levels), liquidity resources, and contractual liquidity flows, such that the impact of these refreshes is reflected in an updated, and materially accurate, quantification of wind-down costs, and capital and liquidity projections, in a matter of days (the data refresh).
• TWD firms should be able to initiate a data refresh on any business day. TWD firms should use any relevant data that is stored in business-as-usual systems calculated as at the date of the refresh. Where relevant position data is not calculated daily in business-as-usual (eg some capital requirement numbers may only be calculated for quarter ends), TWD firms should decide whether this could materially affect the execution or effectiveness of the TWD option in a stressed market. If so, TWD firms should build and maintain the capability to reflect the impact of changes since the last date the refresh was conducted.
• The PRA expects TWD firms to be able to carry out a refresh of the TWD option, including being able to amend all of the factors that make up the TWD scenario, in a matter of weeks. This would help to mitigate risks posed by changing real-life circumstances by helping TWD firms ensure factors in the TWD scenario can be altered such that the TWD option is based on a materially accurate reflection of the real-life circumstances that a TWD firm faces. TWD firms should be able to implement modelling or methodology changes to better align the outputs from scenario testing to the outcome of the execution of TWD firms’ TWD option in real-life circumstances (the full plan refresh).
• In the event a TWD firm conducts a full plan refresh as set out above, the impact of the actions, arrangements, and measures relevant to the new TWD scenario should be assessed in order to calculate new capital, liquidity, and RBL projections. This could consist of refinements to elements of the sensitivity analysis that are more aligned with the new TWD scenario.
• The PRA expects that TWD firms’ data refresh and full plan refresh capabilities can be utilised such that TWD firms are able to perform a refresh of the material components of the TWD option that require judgement, between a matter of days and a matter of weeks (depending on the nature and extent of the stress).^[29] This should include sensitivity analyses of updates to the factors set out in paragraphs 4.49-4.51.
• In the run-up to the execution of a TWD firm’s recovery plan or BRP, the extent of such adjustments will depend on the TWD scenario, how different the real-life circumstances the TWD firm faces are to that scenario, and the amount of time and resource available to the TWD firm. TWD firms should develop a matrix of alternatives for the types of refresh that could be applied under different circumstances and under different time and resource constraints. 

4.19

TWD firms should develop and maintain capabilities to produce quantitative information to aid decision-making, as set out in paragraphs 4.8-4.15.

4.20

This information should be based on the TWD scenario. It should include the following:

(i) relevant data on the trading portfolios as at the reference date of the TWD option;

(ii) the projected financial impact of the TWD scenario through the wind-down period;

(iii) analysis of the likely rump portfolio;^[30] and 

(iv) sensitivity analysis (as described in paragraph 4.11 above) on (ii) and (iii) above.

4.21

TWD firms should have controls in place to ensure this quantitative data is complete and has been subject to quality assurance. It should be available in a format that is readily understandable and usable by the authorities (the PRA and the Bank), with appropriate cross referencing and reconciliation to other business-as-usual data sources such as regulatory reporting data.^[31]

4.22

Expectations in respect of these aspects of the quantitative information are set out below.

4.23

TWD firms should be able to produce position and risk data in a usable format to support decision-making by management with respect to the development and execution of the TWD option.

4.24

This should include all risk and trade data necessary to calculate the financial impact projections and sensitivity analysis in paragraphs 4.25-4.51, including information to support segmentation of TWD firms’ trading portfolios in multiple ways (for example, alternative packaging of trades for novation).

4.25

TWD firms should have the methodologies, models, and frameworks needed to forecast the impact of the TWD scenario on capital requirements, capital resources, and liquidity. This will involve projecting the following (defined in paragraphs 4.29-4.47) from the reference date of the TWD option through the wind-down period:

1. (a) exit costs, including re-hedging costs;
2. (b) operational costs;
3. (c) RBLs;
4. (d) capital resources impacts and requirements; and
5. (e) liquidity and funding.

4.26

Although TWD firms should consider the factors listed in paragraph 3.12 when designing the scenario, it may not be necessary to fully specify how market pricing inputs evolve over the wind-down period when modelling the financial impacts of the TWD scenario. Market movements and related hedging actions during the wind-down period will have an impact on risks, exit costs, and on future capital requirement measures. The interactions between these elements are likely to be complex however, and it is likely to be impractical to meaningfully model them.

4.27

TWD firms may therefore separate the modelling of their financial impact projections into two parts:

• Modelling exit costs, liquidity flows, and capital requirements through the wind-down period under an assumption of no changes to market mid prices (but reflecting the widening of bid-offers in market-wide stress, and factors such as restricted access to OTC markets and credit downgrades as outlined in paragraph 3.12).
• Estimating the potential impact of RBLs on the above projections. The magnitude of these potential losses should be commensurate with the severity of the TWD scenario (as set out in paragraphs 3.6-3.7). The estimate should take account of risk changes through the unwinding of the portfolio and the likely hedging strategy.

4.28

This approach allows appropriate focus of modelling precision towards impacts that are relatively less sensitive to the evolution of market pricing factors through the wind-down period, and can therefore be estimated with greater certainty. The two outputs can then be re-combined to produce a projection of capital resources, capital requirements, and liquidity through the TWD scenario.

4.29

TWD firms should have the capability to model the gap between the expected exit value under the TWD scenario and the accounting book value for positions to be novated, terminated, or liquidated under the actions, arrangements, and measures of the TWD scenario. Such gaps arise due to differences between assumptions in the TWD scenario and assumptions under accounting fair value. This may include different assumptions regarding the reaction of other market participants in those circumstances (which may distort the market) or greater perceived likelihood of certain pricing factors crystallising in the TWD scenario compared to a sale in business-as-usual. Examples of factors driving such differences include:

• charges that would be levied by a novation counterparty to reflect its required return on capital over the remaining life of the position(s);
• bid-offer charges that may arise when splitting offsetting risks into different disposal segments. These include the cost of finding replacement hedges, where risks and their hedges are disposed of at different times;
• the limited ability of the TWD firm executing the TWD option to construct novation packages that are within the risk appetite of a potential step-in counterparty firm in a timely manner;
• the marginal future operational and administrative costs that firms accepting the novation of an OTC derivatives portfolio would incur;
• under fair value accounting, the TWD firm may assume it can close out risks in which it is market maker at mid-price. However, under the TWD scenario, the TWD firm may cease to be a market maker and would therefore be charged a spread;
• position concentration: the TWD firm executing the TWD option may need to exit large positions and so may need to accept size discounts that may not be present in accounting valuations;
• compensation required to incentivise exiting counterparties to be novated to another counterparty; and
• loss of value where Credit Support Annex terms, or other beneficial pricing factors, are modified on novation.

4.30

TWD firms should decide whether differences between the risk and liquidity management strategy in the TWD scenario, and the risk and liquidity management assumptions underlying accounting valuation models, give rise to incremental expected hedging costs that are not already reflected in the accounting valuation. The additional cost of hedging asymmetrically timed wind-downs of offsetting risks should be included in this category.

4.31

The expected incremental bid-offer spread from exiting positions in a stressed market (including replacement hedges) should be included in this category. Although this relies on assumptions about future market projection (and so might be considered as a component of RBLs), its expected value could generally be assumed to be negative to the TWD firm given that a stressed market implies an increase in spreads. It may therefore be considered to fall on the ‘cost’ side when evaluating the cost of an unwinding strategy against its risk or liquidity impacts in a given situation.

4.32

TWD firms should be able to determine the extent to which the above exits costs are covered by existing prudent valuation adjustments and note the value of any such offsets that are identified.

4.33

In order to model exit costs, TWD firms should make assumptions regarding how the trading book portfolio would be split for the purpose of operationalising wind-down actions, arrangements, and measures in the TWD scenario (segmentation). There will be some uncertainty regarding the exact grouping of individual positions into disposal packages, which will be subject to future negotiation with multiple counterparties. These uncertainties may have a material impact on exit costs (for example, there may be uncertainty over whether offsetting market risks can be novated to the same party, thus avoiding cost of an asymmetric unwinding). The segmentation used for modelling exit costs should be selected to reflect a reasonable estimate of expected exit costs. The granularity of the modelled segmentation should accordingly be calibrated to reflect all position characteristics that materially impact the method or cost of exit. Segmentation uncertainties should be quantified in the sensitivity analysis (see paragraph 4.49).

4.34

Template A (Appendix 1) provides a guide to the breadth and granularity of data that TWD firms should be able to provide to demonstrate an ability to analyse exit costs and liquidity flows through the segmentation of the balance sheet by method and price of exit.

4.35

It is the TWD firms’ responsibility to ensure that their capabilities in respect of estimating exit cost are built in a way that is consistent with the Bank’s SoP on valuation capabilities to support resolvability, and related guidance.

4.36

TWD firms should be able to identify operational dependencies and model the time profile of operational costs expected to be incurred in the TWD scenario. This should include costs incurred directly by the trading businesses, as well as intercompany recharges for the provision of critical services. It should include staff costs (including severance and retention) as well as costs of real estate, technology and systems, legal, audit and accounting, FMI access, and other services.

4.37

Template B (Appendix 3) provides a guide to the breadth and granularity of data that TWD firms should be able to provide to demonstrate an ability to analyse operational costs.

4.38

TWD firms should be able to estimate risk exposures and the potential range of RBLs in the TWD scenario. The estimate should include losses from market, credit, and operational risks.

4.39

Because RBLs would be incurred over the duration of the TWD scenario as the risk profile of a firm’s trading activities changes due to their wind-down, a full calculation of RBLs is likely to be complex. For this reason, firms may use approximations, provided they can demonstrate that the resulting RBL is a reasonable estimate of potential losses.

4.40

The PRA will compare TWD firms’ estimates of RBLs with Pillar 1 plus Pillar 2A in order to assess the proportion of capital that executing the TWD option might absorb. It should be understood that the PRA does not regard the sum of Pillar 1 plus Pillar 2A capital as an appropriate measure of RBLs, but rather as a metric for the purpose of providing context to understand the results of a firm’s RBL calculation as part of the PRA’s assessment.

4.41

TWD firms should be able to project the contribution of the in-scope business to capital resources and capital requirements through the wind-down. This should incorporate:

• projections of capital resources impacts through the wind-down period in the TWD scenario, incorporating the impact of expected exit, operational costs, and RBLs on capital resources, as well as a forecast of the impact of the TWD scenario on trading book-related capital deductions; and
• a projection of the impact of the implementation of the actions, arrangements, and measures set out as part of the TWD option on capital requirements in the TWD scenario, including the projection of risk-weighted assets (RWAs) for market, counterparty credit, and operational risks.

4.42

When combined with the non-trading book components of the regulatory group, this should enable the projected capital position to be monitored against capital requirements.

4.43

Template D (Appendix 7) provides a guide to the breadth and granularity of data TWD firms should be able to provide and analyse to demonstrate a materially accurate estimation of capital resource and RWA movements throughout the wind-down period.

4.44

In order to generate liquidity projections, TWD firms should have the ability to forecast and aggregate the following elements under the TWD scenario (including on a single currency basis for major currencies):

• costs and cashflows associated with the wind-down costs, RBLs, and operational costs calculated as set out above; and
• the impact of actions, arrangements, and measures taken to manage the liquidity of the balance sheet, taking account of potential additional collateral requirements, adverse actions taken by FMIs’ collateral requirements, and the effect of speed and asymmetry of unwinding businesses (eg the prime brokerage business).

4.45

TWD firms should be able to assess and monitor the liquidity position against regulatory requirements and quantify the size and duration of any projected shortfalls in liquidity against their internal resources, such that authorities can understand the potential requirement for central bank lending.

4.46

Template E (parts a and b of Appendix 9) provides a guide to the breadth and granularity of data that TWD firms should be able to provide and analyse to demonstrate a materially accurate estimation of liquidity movements throughout the wind-down period.

4.47

The liquidity analysis should be supplemented by the ability to produce encumbered and unencumbered asset data for any point in the wind-down. Template C (parts 1 and 2 of Appendix 5) provides a guide to the breadth and granularity of data that TWD firms should be able to provide and analyse to produce encumbered and unencumbered asset data for any point in the wind-down.

4.48

TWD firms should have the ability to model the rump portfolio. This should include identifying and maintaining an inventory of potential rump positions. These positions could be considered under four categories:

• positions which the TWD firm believes it would be unable to liquidate under the TWD scenario despite all reasonable efforts (‘non-discretionary rump’);
• positions which the TWD firm holds to support non-discretionary rump positions but which in and of themselves could be exited;
• positions the TWD firm believes can be liquidated but are within the appetite for residual positions assumed under the TWD scenario. This might be the case where the cost to liquidate would be greater than the full cost of maintaining positions to maturity or to some future date where liquidation would be optional (‘discretionary rump’); and
• to accommodate partial wind-down capabilities into a single MIS, TWD firms should have the capability to add selected portfolios that would be retained under a partial TWD option into a fourth category of the rump, named ‘trading activities retained’.

4.49

TWD firms should have the ability to perform sensitivity analyses of the key market factors set out in the TWD scenario, assumptions, and judgments that could have a material impact on capital and liquidity projections and on RBLs. At a minimum, sensitivities of capital and liquidity to the following factors should be included:

• duration of market-wide stress;
• severity of credit downgrade of the TWD firm, and severity of general credit downgrade as part of the macroeconomic scenario;
• barriers to OTC derivative market access;
• barriers to the sale of portfolios during market-wide stress;
• full or partial closure of secured funding markets and foreign exchange markets;
• market calibration inputs such as input parameters for the exit cost calculations;
• shifting the relative prioritisation of capital resource maintenance vs liquidity maintenance vs risk reduction;
• increasing or reducing the targeted wind-down period;
• applying different segmentations of portfolios for the purpose of novation to step-in counterparties;
• partial wind-down: TWD firms should be able to quantify the impact on the projections of removing portfolios from the wind-down; and 
• risk appetite for the discretionary rump, for example the likely cost of closing out discretionary rump positions within the active wind-down period.

4.50

This is not an exhaustive list. TWD firms should include in their sensitivity analysis the elements of their TWD planning assumptions that could lead to material differences to capital and liquidity projections under stressed market conditions.

4.51

TWD firms should carefully consider the appropriate level of modelling complexity for the sensitivity analysis. Where possible and proportionate, sensitivity analysis should be incorporated into the model for the projections based on the TWD scenario. For some types of sensitivity, this may not be possible without generating undue modelling complexity that is disproportionate to the extra informational value. For example, there is a danger of false precision, given the high levels of uncertainty inherent in the exercise. In such cases, more approximate methodologies may be appropriate. Bounding techniques, such as applying conservative assumptions in order to simplify the calculation, may be useful in determining which assumptions are material and their likely range.

4.52

The PRA expects a TWD firm’s senior management to use the TWD firm’s information provision and decision-making capabilities to inform decisions on whether:

• the TWD option is appropriate for maintaining or restoring the viability of the TWD firm;
• the recovery plan is credible as a whole; and
• the TWD option is sufficiently tailored to the TWD scenario.^[32]

4.53

Using the information provision and decision-making capabilities, including sensitivity analyses, TWD firms should be able to determine how changes to one part of the TWD option affects other parts of the TWD option. For example, TWD firms should be able to determine how any changes to the TWD scenario impact the quantification of wind-down costs. TWD firms should also be able to determine how these changes to the quantification of wind-down costs impact their capital and liquidity projections. Finally, TWD firms should be able to use those projections to make decisions on whether to execute the TWD option.

4.54

TWD firms’ information provision and decision-making capabilities should also ensure the TWD firm can provide information to authorities that will help the PRA and Bank make their decisions throughout a firm-specific and/or market-wide stress. These decisions may include, for example, whether liquidity support should be offered to firms.

4.55

As the TWD option is part of TWD firms’ recovery and post-resolution restructuring planning, reporting requirements and expectations relating to assurance, governance, information provision, and decision-making are driven by those policies. The interaction between the expectations in SS9/17, other relevant PRA policies, this SS, and the Bank’s RAF policies is set out in more detail in the Trading activity wind-down SoP.

4.56

TWD firms should implement an approach that best delivers the expectations in this SS depending on their business model, and should utilise their existing capabilities to meet expectations where possible, and develop new capabilities where necessary.

4.57

TWD firms should ensure they are prepared for resolution (Rule 8 in the Fundamental Rules Part of the PRA Rulebook). For example:

• TWD firms should ensure their TWD capabilities could be utilised to aid the independent valuer in carrying out relevant resolution valuations on a sufficiently timely and reasonable basis;
• When developing TWD capabilities, TWD firms should determine the information they will need to be able to develop and execute the TWD option in both recovery and post-resolution restructuring; and
• TWD firms should determine how their TWD capabilities may help them to leverage resolution tools (eg transfer of positions to an asset management vehicle) if relevant according to the TWD firm’s resolution strategy.

4.58

The PRA expects TWD firms to provide evidence that their board of directors, or other appropriate senior governance committee or group, has appropriately overseen and sufficiently challenged the design, implementation, maintenance, and testing of the TWD firm’s TWD capabilities. In particular, the board should approve and regularly review the TWD firm’s TWD capabilities, including the design of the MIS. The TWD firm’s head of stress testing should be involved in the review of TWD capabilities.^[33]

4.59

TWD firms should set and document criteria to guide judgements they will have to make in developing TWD capabilities and scenario testing the TWD option. These judgements might include, for example, judgements on the usefulness of alternative approaches to financial impact projections, the level of testing and monitoring to be performed, and resource prioritisation. These criteria should include how the expectations in this SS should be interpreted in relation to the size, systemic importance, and business model of their trading activities.

4.60

These governance arrangements should be integrated within the wider business-as-usual recovery planning governance arrangements.^[34]

4.61

Developing and maintaining the firm’s recovery plan and resolution pack^[35] is a prescribed responsibility (PR) under the Senior Managers Regime.^[36] The maintenance of TWD capabilities and of the TWD option falls under this PR.

4.62

SS9/17 sets out the PRA’s expectations regarding the governance arrangements for recovery planning.^[37] These expectations apply for a TWD firm’s TWD capabilities; these capabilities should be integrated into the TWD firm’s wider arrangements for recovery planning.^[38] 

4.63

The development and maintenance of information provision and decision-making, and refresh capabilities, will involve the development and use of models. The model risk management expectations set out in SS3/18 ‘Model risk management principles for stress testing’ should apply to these models.^[39] TWD firms should validate their models in aggregate to ensure any interdependencies with respect to their role in TWD information provision, decision-making, and refresh are fully considered.