FRTB

Overview

Fundamental Review of Trading Book Approach

Basel Committee on Banking Supervision (BCBS) has proposed the new market risk framework as "The Fundamental Review of the Trading Book" (FRTB) with the intent to address the shortcomings of the existing framework and bring consistency in market risk assessment standards across jurisdictions. The new framework will come into effect globally starting in January 2022.

  • Introduction of a more objective boundary to reduce arbitrage between regulatory books
  • Internal Models Approach with more rigorous model approval process at individual desk level. Stringent and consistent identification of market risk factors across banks as well as constraints on hedging and diversification
  • Shift from Value-at-Risk (VaR) to an Expected Shortfall (ES) measure of risk under stress to ensure a more prudent capture of “tail risk”, and capital adequacy during periods of significant financial market stress
  • BCBS estimates that FRTB will result in 40% increase in total market risk capital requirements. The changes proposed not only to have an impact on the capital requirements, but it will also pose challenges for a bank's technology infrastructure
  • Risk sensitive Standardized Approach and incorporation of market illiquidity to mitigate the risk of sudden and severe impairment
  • Internal Models Approach with more rigorous model approval process at individual desk level. Stringent and consistent identification of market risk factors across banks as well as constraints on hedging and diversification
  • Shift from Value-at-Risk (VaR) to an Expected Shortfall (ES) measure of risk under stress to ensure a more prudent capture of “tail risk”, and capital adequacy during periods of significant financial market stress
  • BCBS estimates that FRTB will result in 40% increase in total market risk capital requirements. The changes proposed not only to have an impact on the capital requirements, but it will also pose challenges for a bank's technology infrastructure
  • Risk sensitive Standardized Approach and incorporation of market illiquidity to mitigate the risk of sudden and severe impairment
Offerings

Our Offerings towards FRTB

Impact Assessment

We help our client’s in understanding regulator’s guidelines and significance of the overall reforms brought by FRTB.

  • Qualitative and Quantitative Analysis on client’s trading portfolio and market risk capital assessment framework in place.
  • Impact of revised definition of Trading Book on client’s portfolio classification
  • Impact of revised Standardized Approach and Internal Models Approach on client’s capital requirements

Impact Assessment

We help our client’s in understanding regulator’s guidelines and significance of the overall reforms brought by FRTB.

  • Qualitative and Quantitative Analysis on client’s trading portfolio and market risk capital assessment framework in place.
  • Impact of revised definition of Trading Book on client’s portfolio classification
  • Impact of revised Standardized Approach and Internal Models Approach on client’s capital requirements

Comprehensive Implementation Plan

We believe implementation of strategic plan is as important as the plan itself. We help our clients achieve strategic standards.

  • Gap analysis of existing policies & procedures, modelling requirements, data sufficiency, IT system & reporting requirements
  • Plan to plug the identified gaps to meet the FRTB requirements
  • Optimally utilize the existing market risk IT Infrastructure of the client for quick and cost-effective implementation of FRTB requirements

Comprehensive Implementation Plan

We believe implementation of strategic plan is as important as the plan itself. We help our clients achieve strategic standards.

  • Gap analysis of existing policies & procedures, modelling requirements, data sufficiency, IT system & reporting requirements
  • Plan to plug the identified gaps to meet the FRTB requirements
  • Optimally utilize the existing market risk IT Infrastructure of the client for quick and cost-effective implementation of FRTB requirements

Implementation Support

We support our clients in developing full-fledged market risk framework.

  • Market risk models and model validation
  • Policies related to FRTB and compliance
  • Procedures, reporting and systems implementation support

Implementation Support

We support our clients in developing full-fledged market risk framework.

  • Market risk models and model validation
  • Policies related to FRTB and compliance
  • Procedures, reporting and systems implementation support
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Contact

Get in touch for FRTB Consultation