Other parts of this series:
In the previous blog in this series, we looked at some actions that banks may need to take to reconcile the Fundamental Review of the Trading Book (FRTB) and Volcker rules as they pertain to trading desk activities.
In addition to the trading desk structure, trading desk optimization and trading book definition, banks should examine the following areas:
- Desk Level Disclosure. Infrastructure changes should support public disclosure of capital calculations, P&L attribution and back testing results due to enhanced disclosure requirements. Specifically, banks should augment their reporting infrastructure to be able to report the capital charges and desk information as required under Volcker and FRTB rules.
- Desk Level Key Attributes. FRTB calls for definition and documentation of Trading Desks’ attributes (such as defined group of traders or trading accounts, clear reporting lines, compensation policy linked to objectives, and strategy). While Volcker rules do not explicitly mandate risk policy requirements for all sized banks, FRTB rules have strict governance controls built in, which banks will need to codify and implement internally.
- Implementation Synergies. Volcker and FRTB are strategic programs in most banks, calling for implementation across regulatory regimes with overlapping areas of influence. In our view these regulatory programs should be viewed as strategic opportunities to drive synergies in both programs with an eye to keeping costs and timelines manageable.
Overall, it is clear that Volcker and FRTB rules will coexist in the near future and banks will need to re-optimize their compliance programs to both set of rules to stay ahead of the curve and use these programs to create business advantage.
For more information, see our presentation “How the Fundamental Review of Trading Book Impacts the Volcker Regime Trading Desk Structure.”
- “Minimum capital requirements for market risk,” Basel Committee on Banking Supervision, Standards, January 2016. Access at: https://www.bis.org/bcbs/publ/d352.htm
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