Quantifi, a provider of risk, analytics and trading solutions, and Kauri Solutions, a specialist financial consultancy firm, recently co-hosted a webinar on ‘FRTB: Strengthening Market Risk Practices?’. The 100+ delegates were invited to take part in a survey on how prepared their firms are for dealing with the impact of FRTB and their approach to addressing implementation challenges.
Key findings from the survey:
- FRTB is a key priority for the majority of banks (60%), however, only 33% have assessed the impact and are making the necessary preparations
- Over 50% of banks state their existing infrastructure is not fit-for-purpose. The top ranked likely actions are: replacement of existing systems, a fundamental redesign of existing systems, or integrating a complimentary external solution to support internal resources
- FRTB-CVA presents implementation challenges, with banks concerned about: methodological uncertainty and complexity (25%), computational capacity (22%) and extending CVA across all products and risk factors (22%). This emphasises the importance of having a computationally efficient cross-asset class solution which is flexible to support current and future regulations
- 80% plan to have a shared or single market data feed across front office and risk. This confirms the need for a unified set of front-to-back aligned risk models, calibrations and data capabilities to achieve optimal trading, risk-aligned pricing, enhanced performance and cost-efficiency
- To handle the volume and complexity of FRTB calculations requires a high-performance IT infrastructure across all asset classes. 51% of banks share Quantifi’s view that the optimal way to deal with increased calculation volume is to enhance efficiency of existing codebase and optimise all calculation steps, for baseline as well as for scenarios
“The intensity of FRTB calculations leads to a significant increase in the volume of data needed to be processed. Within FRTB programme streams, managing non-modelable risk factors (NMRF) is another area of focus. Expectations are that solutions (internally developed, customised, or external) will support data integrity, modelling, stress/scenario analysis and RWA production activities related to NMRF and proxies. This includes better aligned data repositories for market, position and risk data in order to classify, monitor, alert and rectify when modelable risk factors become unmodelable according to FRTB rules” comments Vlad Ender, Managing Director, Kauri Solutions.
“The impact and requirements of FRTB across risk, front office, finance and IT are broad and deep. FRTB places greater pressure on bank business models as it requires a major rethink of front-to-back frameworks and processes. Banks are at varying levels of preparedness to deal with the impact of FRTB. Forward thinking firms are assessing the parameters of FRTB and making decisions on desk structure, technology and methodologies,” comments Dmitry Pugachevsky, Director of Research, Quantifi.
About Kauri Solutions
Kauri Solutions is a specialist financial consultancy firm. Combining in-depth knowledge of the financial markets with business acumen and IT skill, Kauri Solutions creates bespoke solutions to meet client needs. Services include regulatory advise, advising on derivative and securitization structures, identifying, implanting and delivering standalone derivative products and platforms, and delivering time-critical IT systems that cross the front, middle and back office.