Optimising operations in compliance with the FRTB
3 November 2016
The Fundamental Review of the Trading Book (FRTB) is forcing banks to rethink their technical infrastructure and, in some cases, their overarching business models.
In a recent article from Inside Reference Data, Misys explains how, if properly planned and executed, the FRTB solution can be the platform on which to build the next generation of business aligned risk management.
The FRTB’s proposed market framework, which outlines a revised internal models approach (IMA) and a revised standardised approach (SA), will result in an increase of at least 40 percent in trading-book capital charges. Significant in itself, this rate has the potential to collapse whole business lines in today’s unusually ‘low interest rate, high capitalisation requirement’ environment.
At such a time, IT changes need to be justified on efficiency and profitability rather than simply regulatory grounds. In other words, simply building out an FRTB specific architecture may achieve compliance but, to be successful, the technology must also support an optimised business approach.
In anticipation of FRTB, which takes effect in 2019, banks must urgently consider an operational solution that can properly calculate, aggregate and report according to the revised framework, and that offers the flexibility to optimise capital use as a core part of the overall risk infrastructure.
Misys understands deploying technology in 2016 against the complex backdrop of ongoing regulatory evolution and low yield business conditions. Our approach is designed to create a transformation roadmap based on service applications that transform regulatory stress testing into a profit enhancing stepping stone towards full FRTB compliance.