New rules from the Basel Committee on Banking Supervision (BCBS)—known popularly as “Fundamental Review of the Trading Book” or FRTB—present banks with a significant challenge as they seek to comply with FRTB requirements. 

We believe that most banks have elements in place to begin an effective transformation of their market risk processes in response to FRTB.  They will need to link these elements together to create a comprehensive approach to market risk management. 

There are four key steps in this approach:

  1. Defining internal understanding of FRTB rules and requirements.  This includes performing a detailed impact analysis of the FRTB rules on capital requirements and the processes involved.  The bank should form assessment workstreams, identify categories and dimensions of impact, and understand the current capabilities for people, process and technology within the bank.
  2. Developing a target state operating model.  The bank should finalize the target state technology and business operation capabilities and identify strategic platforms and solutions to be leveraged in a target state environment.  In addition, it should also define the organization structured for compliance and participate in industry forums to determine the current level of industry practice. 
  3. Documenting gap analysis and create an implementation strategy.  This entails identifying gaps (using the current state assessment and target state definition) as well as areas where remediation work is required for compliance.  In this step, the bank also finalizes funding requirements and makes provisions, identifies gaps in resources and skills, and details the technology changes required to reach the target state. 
  4. Creating an implementation roadmap.  Once the first three steps have been taken, the bank can create a detailed roadmap and direct different workstreams to reaching the desired target state. 

With FRTB compliance required by December 31, 2019, banks should begin the compliance journey today to address the complex issues raised by these important new rules. 

For more information see SlideShare deck: “Fundamental Review of the Trading Book (FRTB) – Data Challenges


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