Bridging risk management and FRTB requirements

The Basel Committee on Banking Supervision (BCBS)’s guidelines for the Fundamental Review of the Trading Book (FRTB) requirements are an overhaul to the global banking market risk framework that have, through a series of revisions, laid out a number of challenges for banks in the past few years.

Aligning front office pricing models through to finance, risk and compliance is no easy task – neither is positioning your operating model around risk while supporting and optimising your business model. In addition, frequent changes of the regulatory tenets and to deadlines requires a flexible solution that can ebb and flow with the mandated updates.

Going into next year, many banks are grappling with the need to meet both the FRTB Standardised Approach (SA) and the Internal Models Approach (IMA) – especially for certain desks. Their capital optimisation depends on having a tool that adjusts to meet both of these needs.

For SA banks, a straightforward calculation of three components derived from risk sensitivities is required. But users need up-to-the minute data to properly calibrate those metrics.

For those banks defending their IMA status, they must pass the risk factor eligibility test and in order to do that they must be able to source real price observations to prove some level of fungibility for infrequently traded risk factors in the over-the-counter derivatives market.

ActiveViam’s FRTB Accelerator solution contains all the source code and prescribed formulas to meet the required regulations, as well as take data analytics from a prescriptive regulatory exercise into predictive territory. The FRTB Accelerator allows users to aggregate data from risk engines across all parts of the enterprise and perform complex, non-linear calculations as the valuations are updating, providing an unparalleled view into global risk and the ability to stretch your solution’s utility (and money allocated to it) to create an optimal return on capital.

ActiveViam has worked with the Depository Trust and Clearing Corporation (DTCC) to develop the FRTB Real Price Observations Data Service. The FRTB service in-memory technology with the DTCC’s expansive pools of data allowing banks to calculate and model “non-modellable risk factors” (NMRF), as laid out in the regulation, which would allow the firms to maintain the use of the less capital-intensive IMA.

Read more about ActiveViam’s FRTB Accelerator in our white paper. For more information visit www.activeviam.com and follow us on LinkedIn and Twitter.