U.K. pension funds, hedge funds and funds run by money managers will be subject to an upcoming systemwide stress test to be launched by the Bank of England.
The BoE said on Monday that following the September LDI crisis it wants to improve its understanding of actions taken by banks as well as non-bank financial institutions in stressed financial market conditions, including in gilt, gilt repo, sterling corporate bond and derivative markets.
The bank wants to investigate the risks to and from non-bank financial institutions to understand how they can amplify shocks and bring risks to U.K. financial stability.
"We regularly run scenario exercises with a variety of firms which support our efforts to protect and enhance the stability of the U.K. financial system. The launch of this exercise will provide valuable insight into the systemwide dynamics for banks and non-banks following a severe but plausible stress to financial markets," Jon Cunliffe, deputy governor for financial stability at the Bank of England, said in a news release Monday.
The bank will work with the U.K. Financial Conduct Authority and The Pensions Regulator, it said.
Market participants will be asked to evaluate what actions they would take in response to the stress scenario as the U.K. central bank then seeks to evaluate the impact of collective actions. A final report will be published in 2024.
Nausicaa Delfas, CEO of The Pensions Regulator, welcomed the announcement. "We are pleased to be working alongside the Bank of England and Financial Conduct Authority on this important systemwide exercise," she said in an emailed comment.