EU regulators planning NBFI stress test

Written by Adam Cadle

27/05/2025

European regulators are preparing to launch a sweeping stress test targeting non-bank financial institutions (NBFIs) to assess how these market participants both contribute to and cope with adverse market-stressed events.

The first of its kind in the EU, the exercise aims to assess how a systemic market shock could cascade through entities such as hedge funds, private equity firms, pension funds, and insurers.

The framework is still under development, but regulators are optimistic it could be implemented as early as 2026, according to the Financial Times.

The BoE’s own “system-wide exploratory scenario” last year modelled how defaults at entities such as hedge funds could amplify financial market stress.

Keith Viverito, managing director EMEA, Clearwater Analytics, said: “For institutional investors such as insurers or pension funds, preparedness for adverse market-stressed events rests on having the capability to quickly pull up a comprehensive and accurate view of all their holdings. As these investors are increasingly investing in a wider range of assets, they are dealing with very different types of data which can prevent this – if asset-agnostic systems are not in place.

“They need to follow the lead of the big banks and focus on investing in the technology that supports their investment operations workflows. If individual institutions can rely on technology that provides timely, accurate, and actionable investment data on their entire portfolio, they will be able to understand their market exposure across asset classes and practice more effective risk management. This will help to de-risk the wider financial system and ensure that waves of market stress are more contained and stakeholders in these institutions are better protected.”

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