Quantifi, a provider of risk, analytics and trading solutions, and Monocle, a consulting firm providing specialist skills to banks and insurers, have published a joint whitepaper ‘FRTB: Moving Towards a Practical Implementation’. This paper highlights the main changes being introduced by the new market risk standards and the related challenges in terms of data management, modelling and technology.
The Fundamental Review of the Trading Book (FRTB) heralds a new era in bank risk management, making it one of the most critical items on a bank’s to-do list for the immediate future and beyond. This paper highlights the enormity of the data and modelling requirements imposed by FRTB as well as its impact on banks’ risk and systems architecture. It also highlights some key considerations facing banks in achieving compliance and mitigating the impact on capital under the new regulatory regime. For example trading desks who want to be capitalised based on less punitive Internal Model Approach (IMA) still have to calculate and report capital based on Standardized Approach (SA) as a fall-back.
“Partnering with the right experts and technology providers can help banks begin an effective transformation of their market risk processes that would give them an advantage over competitors who are not geared to respond to this major regulatory shift.”Dmitry Pugachevsky, Director of Research, Quantifi
“FRTB is set to revolutionise current market risk practices, placing emphasis on the coordination of operational, risk and data management processes as well as systems and technology” comments Dmitry Pugachevsky, Director of Research, Quantifi. “To best respond to these new demands, banks need to make the right strategic and technology decisions, and assess the impact on operations and processes across risk, front office, finance and IT. Partnering with the right experts and technology providers can help banks begin an effective transformation of their market risk processes that would give them an advantage over competitors who are not geared to respond to this major regulatory shift.” continues Dmitry.
Banks are also at different levels of preparedness. A recent Quantifi survey showed only 33% of firms are ready to deal with the impact of FRTB. Of those surveyed, 52% stated their existing risk infrastructures to support FRTB are not fit for purpose. Banks that have a culture of following a disciplined approach and make good choices in managing their technology will likely be at a distinct advantage and better positioned in the post FRTB world.
A spokesperson from Monocle commented “We believe FRTB will have a positive impact on the industry as it incentivises banks to move towards stronger technology, business and functional risk management capabilities. One of the biggest challenges of the new standards is the collection and management of quality market risk data. Banks will need to source, process and store more data, as well as trace data lineage through their various processes. As banks look to strengthen their existing market risk infrastructure and overall technology capabilities, it is important that their technology strategy and investment decisions have strong foundations.”
Monocle is a results-focused consulting firm providing specialist skills to Banks and Insurers in executing finance, treasury, risk and compliance projects. Our consultants translate business and regulatory change requirements into tangible, technical and data-driven results. Our projects typically bridge the divide between business stakeholders’ requirements and a plethora of complex systems, processes and data that exist within organisations. Since 2001 Monocle has provided its unique service offering to institutions globally. The company has 150+ staff with offices in South Africa and the UK.
For further information, please visit www.monocle.co.za