Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Following the publication of the final Basel text on FRTB at the
start of the year, we felt the time was right to sit down with
regulators and banks to discuss plans for compliance. Hot on the
heels of our successful London event which you can read about here,
Five Key Takeaways from our London FRTB Summit, we recently
hosted a discussion in New York with speakers from the national
regulators as well as senior market risk representatives from JP
Morgan Chase, Morgan Stanley, RBC and ING. Over 50 banking
representatives joined us with many agreeing that the event, which
included a regulatory keynote, provided some welcome clarifications
on the FRTB text. Here are our four key takeaways:
1. National regulators are targeting the Basel deadline
of 2022 as the FRTB go-live date
The final timeline is set for FRTB as far as the U.S. regulators
are concerned. The notice of proposed rulemaking (NPR), which
should cover any remaining uncertainties that banks have, will be
published as soon as possible.
From the banks' perspective, many still have concerns with the
complexity of the Basel text in general and more specifically the
major changes required in the RFET. Complexity is no excuse for
inaction however and banks should urgently move ahead with their
compliance plans if they are to meet the 2022 deadline.
2. Non-U.S. G-SIBs will have to follow the U.S. rules
for their U.S. operations
Non-U.S. G-SIBs will have to follow the U.S. rules for their
U.S. operations under an intermediate holding company (IHC),
according to the regulator. This rule will extend to European banks
that might be working towards a different timeline and different
capital requirements under the EU rules.
As regards the model application process, this will be similar
to the Basel 2.5 process from a documentation perspective with the
exception of the P&L attribution test which is new.
3. Vendors will also come under the regulatory
spotlight
Vendor audit is not yet perfectly prescribed but a U.S.
regulator confirmed that vendors are expected to be audited by an
acceptable audit firm and should be able to provide public audit
attestation.
Vendor solutions should also meet the data governance principles
outlined in the so-called,
"Annex D", which was first introduced last year and provides
guidance for evaluating the sufficiency and accuracy of risk
factors for IMA trading desk models.
As regards delta-based buckets, they were created to avoid
different moneyness rules for the different asset classes. The
strike to delta translation should use each bank's own model and
while regulators are aware that this might create a conundrum with
vendor solutions, it does not preclude using vendors that have the
right architecture in place.
4. The full impact of FRTB is likely
underestimated
We closed our event with a panel discussion with senior FRTB
representatives from a number of banks. When asked about areas that
are still underestimated in terms of complexity and/or impact, the
Default Risk Charge (DRC) and the operation post go-live were
mentioned as important areas to keep an eye on. Firms also
commented that insufficient thought had gone into how they will run
the model day-to-day after go-live. Many banks seem to have
deferred that discussion. Concern has also been raised as regards
Libor replacement from a modellability perspective as well as a
lack of historical market data for the incoming SOFR.
Thanks to everyone who participated in and attended our FRTB
events this year. With the 2022 deadline now set, we are working
with firms globally to help them simplify the challenges presented
by FRTB and more quickly calculate and adapt to the changing
regulation and related capital impact.
Posted 03 June 2019 by Gil Shefi, Managing Director-FRTB, IHS Markit and
Paul Jones, Global Head – FRTB Solutions, IHS Markit
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
