Fundamental review of the trading book

Insights

Fundamental review of the trading book

Program issues and impacts

The fundamental review of the trading book (FRTB) goes live in 2019. Its impact stretches far beyond changes to model methodology. National supervisors are expected to finalise implementation of the revised market risk standard by January 2019 and to require their banks to report under the new standards by 2020.

FRTB program implications

While it is reasonably clear what is required for IT, data, and implementation, there are still some unknowns and some tough to deliver requirements, including Non-Modellable Risk Factors (NMRFs), Profit and Loss (P&L) attribution, and the question of whether full revaluation is needed to satisfy the attribution tests.

Although banks have participated in regulatory Quantitative Impact Studies (QIS) and industry surveys, not all banks have performed detailed analysis to determine impact on trading desks and business strategy. By doing so, there is an opportunity to shape the design and implementation of FRTB in a more optimal way.

With major framework changes, such as enhanced disclosure, and increased requirements for Risk-Finance alignment, framework challenges posed by the FRTB should be given early consideration.

Delivering the FRTB

A number of UK and European banks now have programs up and running, or preparing to formally launch, with a view to completing most changes and preparing for parallel run by the end of 2017 or the first part of 2018.

Different banks have focused initially, to varying degrees, on each of QIS and impact assessments, understanding the rules and engaging in lobbying and industry forums, and using FRTB to motivate major system infrastructure changes.

(English version)

The Deloitte Centre for Regulatory Strategy is a source of critical insights and advice, designed to assist the world’s largest financial institutions manage the strategic and aggregate impact of regional and international regulatory policy.

With regional hubs in the Americas, Asia Pacific and EMEA, the Centre combines the strength of Deloitte’s network of experienced risk, regulatory, and industry professionals — including a deep roster of former regulators, industry specialists, and business advisers — with a rich understanding of the impact of regulations on business models and strategy.

Did you find this useful?