Live webinar held on Tuesday, July 24th
The Fundamental Review of the Trading Book (FRTB) is the harbinger of renovation for Banks’ trading-risk infrastructure. In this webinar Percentile’s risk technology experts retrospectively view a successful FRTB implementation on January 2, 2022, the day after FRTB has gone live. By taking an armchair view, we trace the practical steps taken to achieve a productive FRTB implementation and how to create a sustainable infrastructure in the process of complying with FRTB.
The Hypothetical Situation
Let your imagination run free for a while: Since FRTB rules started to settle in 2018 a global investment bank has spent 3 years renovating its trading-risk infrastructure platform. The multi-year programme was intially meant to address the FRTB challenges until the bank recognised that its then current but legacy infrastructure could not cope. The platform was based on a combination of vendor provided and proprietary risk pricing models and systems. Their multiple sources of market data lived in distinct and separate silos across the globe. Furthermore, delays in the FRTB timeline resulted in the bank having to maintain existing IMA infrastructure and keep up with the recommendations of the ongoing TRIM exercises. Under advice from multiple consulting firms the bank’s CRO in conjunction with the CTO took the view that any strategic approach to tackling the challenges would need the following:
- A single pricing utility which delivers front-office and risk valuation capabilities;
- Move away from batch to on-demand / real-time processing for a realistic instantaneous view of portfolio risk;
- Ensure correct and approved market data supply chain for improved data governance;
- Establish process to fully enable traceability of data within a very large set of complex calculations;
- Embrace modern distributed computing and cloud scalability to handle growing demand while managing costs.
- All while feeding back into the business-as-usual requirements so as not to require a big-bang move to a new infrastructure and risk environment
How did the bank achieve all of these objectives while dealing with the demands of business-as-usual under growing regulatory scrutiny e.g. TRIM, CCAR?
We analysed and discussed these questions and the challenges faced at the hypothetical institution and provided shed light on architectures, implementation schedules and innovation required to deliver operationally effective FRTB compliance.
Key Take Aways:
- Creating a centralised pricing utility and reusable data store, that can be used for both SA and IMA implementation, will save costs and pay continuous dividends.
- A collaborative effort between banks, data vendors and technology vendors will ultimately make FRTB achievable cost effectively.
- The use of alternative real price observation data will help modellability for certain asset classes.
- FRTB is a key driver for risk innovation – and can facilitate a shift to real time, on-demand and cloud based risk infrastructure, eventually leading to machine learning and AI capabilities.
- Capital-efficient trading and portfolio optimisation is a genuine example of this and as key driver for innovation and capital savings.
To find out how Percentile can help in any of these areas, do get in touch.