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How to address Fundamental Review of the Trading Book regulations

Comprehensive approach can help banks meet Fundamental Review of the Trading Book regulations.

Overview

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"All banks are required to finalize the implementation of the revised market risk standards by January 2019 and to start reporting under the new standards by the end of 2019.1"



FRTB Framework

"A number of crucial issues are forcing banks to re-evaluate their investment model to stay competitive and relevant in the market."



The revised FRTB framework includes three features we think will have a significant impact on banks and financial institutions:

  • A revised boundary between the trading book and the banking book. The boundary has been strengthened, with the aim of discouraging regulatory arbitrage.

  • A revised and standardized approach for market risk. A more risk-sensitive framework should help address current shortcomings around guaranteeing sufficient regulatory capital.

  • A revised internal models approach for market risk. Multiple adjustments should help make internal model frameworks more robust.

Recommendations

Our global professionals have deep experience in helping clients meet regulatory needs around the world. We bring strong support—that can be tailored to meet an institution’s needs—in these areas:

  • Strategic and operational advisory: We have deep experience with governance and policy review, qualifying model accuracy and improving data quality for risk data aggregation implementation.

  • Tools and key accelerators: We have tools for conducting assessments and performing calculations, such as Expected Shortfall calculation. Further, we can assess the accuracy and risk for performance models, and provide a data management system.

  • People, partnerships and global experience: Our team includes specific skills and competencies, with access to global, local and cross-region insight and knowledge.

DOWNLOAD: FUNDAMENTAL REVIEW OF THE TRADING BOOK [PDF]

Source:

1. “Minimum capital requirements for market risk,” Basel Committee on Banking Supervision, January 2016. Access at: https://www.bis.org/bcbs/publ/d352.pdf.