FRTB Implementation: Key concerns, opportunities and constraints


Arguably the fundamental review of the trading book is one of the largest regulatory overhauls impacting market risk in the last decade. FRTB is set to revise the trading book and banking book boundary whilst creating more detailed and consistent standards across the industry. For many financial institutions FRTB has been and continues to be a major focal point. A project of this scale and scope requires careful attention and consideration, however as we inch ever closer to full implementation many questions have still been left unanswered. Historically the FRTB journey has been turbulent with initial implementation dates being delayed and a final rule yet to be published. The deadline currently stands at December 2019, although this may seem like the distant future financial institutions must act now to ensure they are ready and capable of full compliance.

The Center for Financial Professionals conducted research with several leading industry experts to identify the most pressing current and future challenges surrounding FRTB implementation. This provided insight into a variety of institutions and their FRTB projects and planning, some of the key issues raised are outlined below.

As mentioned one of the main challenges facing FRTB is uncertainty surrounding the implementation deadline and final rule. Full implementation and go-live currently stands at December 2019, however critics have argued that this timeline could cause issues. FRTB is a huge undertaking and many have raised concerns over the ability to be fully compliant by this date. Some even speculate that the Basel committee will push the final deadline back further as the industry will simply not be ready at this time.

Additionally, the Basel committee have published draft FRTB proposals, however they are yet to reveal the final FRTB rule. Understandably this is a major issue due the knock on impacts around internal planning and preparation. This uncertainty has left many organisations with a difficult decision regarding FRTB development. Putting plans and procedures in place now could mean successful implementation, however if the final rule differs from the draft proposals then many could have wasted valuable time, money and resources. This would also mean more investment and effort to rectify the plans in order to be fully compliant. However on the other hand some financial institutions may await the publication of the final rule before heavily investing in changes. Arguably this is a risky tactic as with only two years until the go-live date and no indication of when the final rule will be released, these institutions could face a tight timeframe for implementation and compliance. In light of this dilemma many institutions are seeking a development path which allows for preparation and planning for FRTB whilst remaining flexible. With so much uncertainty surrounding the final rules incorporating a level of adaptability and agility within planning is desirable.

Another key area highlighted by several industry experts was the potential variation in global approaches to FRTB planning and implementation. As we are aware FRTB was designed to create harmony and consistency across the industry and create a common language. However, this can only be achieved if all institutions conform to the same regulatory standards. Although concern is growing over the US and their approach to implementing the new FRTB standard. With heightened political turmoil concerns are increasing that the US may deviate from the proposed standard and will not successfully implement all elements of FRTB. In this scenario, the industry would experience an un-level playing field especially for those in the UK and Europe. At this stage of development many questions have been left unanswered regarding variations in international approaches to FRTB. Within the coming months, it is expected that more information regarding global approaches will be published. At this year’s FRTB summit (21-22 November) The Center for Financial Professionals have formulated an in-depth panel discussion to explore the current and future expectations surrounding global approaches to FRTB. This is a fantastic opportunity to interact with leading industry experts and gain their perspective on how the industry is dealing with this potential challenge.

And lastly a key theme which was mentioned by multiple industry professionals was the challenges surrounding data and systems. Accessing and sourcing the correct forms of data in order to be FRTB compliant is an area that many are struggling with. At this current time few solutions have offered insight into how to obtain the correct data. Many financial institutions mentioned data pooling as a possible saving grace, this would mean firms could access vast quantities of data all from one location. However this is an enormous task and one that many believe is virtually impossible to complete in house. Although this has created an environment for some of the industry’s leading service providers to offer data pooling solutions, the coming months are set to be very interesting to see who will be the winners and losers of data pooling. However once this issue is resolved a secondary issue regarding internal systems is created. Due to FRTB’s large data requirements many financial institutions will be forced to either update pre-existing legacy systems or create new systems to accommodate the changes. Again this issue relates back to the pressing timelines and whether financial institutions can adapt their internal systems in order to be fully compliant for the proposed FRTB deadline.

In conclusion the Fundamental Review of the Trading Book is undoubtedly a huge undertaking for all global financial institutions. Unfortunately with only two years until full implementation many questions and issues are still raising concerns across the industry. Several industry experts have claimed that many of the current constraints stem from a lack of understanding and uncertainty. Many financial institutions wish to prepare for FRTB as the timelines are growing ever smaller, however this is a difficult task and the final rule is yet to be published. Other areas such as variations in global approaches and conforming to the data and systems requirements have also been highlighted as key areas of focus for the coming months. One of the largest takeaways raised from research was the necessity to prepare for FRTB now whilst remaining adaptable for future amendments. This is set to be a very exciting time as the industry gears up to full implementation and begins to focus on the final 2019 implementation goal.

The Center for Financial Professionals will assess the FRTB progress, opportunities and constraints ahead of full implementation at the year’s 2nd Annual Fundamental Review of the Trading Book Summit taking place on the 21-22 November 2017 in London. The highly anticipated upcoming event will provide fantastic networking opportunities and the ability to hear from the industry’s leading FRTB and market risk experts.

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