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FRTB Data Management Challenges Call for an Immediate Start on Implementation

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The compliance deadline of Fundamental Review of the Trading Book (FRTB) regulation may be 18 months away, but the data management challenges it presents suggest firms should start implementation early to deal with the details. Among the most pressing challenges are souring required market data, ensuring data accuracy, accessing data in a timely way and meeting modelling requirements.

Getting to grips with the data and data management requirements of FRTB was the subject of a recent A-Team Group webinar moderated by A-Team editor Sarah Underwood and joined by Joel van der Leest, FRTB programme manager at ING; Jerry Goddard, director, risk data aggregation and risk reporting framework at Santander UK; Jacob Rank-Broadley, director, regulatory and market structure propositions at Thomson Reuters; and Charlie Browne, head of market data and risk solutions at GoldenSource.

The discussion opened with a look at the regulatory status of FRTB, which after a one-year delay has a compliance deadline of January 2019. The speakers suggested conversations about the detail of the regulation with the Basel Committee on Banking Supervision (BCBS) are far from over and that more changes are likely, making it difficult to define how the regulation will be interpreted in different jurisdictions at this stage.

This situation was reflected in an audience poll on progress towards compliance. Some 23% of respondents said they have yet to make any progress. The same percentage said they are in the planning stage or have just started an FRTB programme.

A second poll considering the data management challenges firms face in preparing for FRTB, showed 61% of respondents saying sourcing required market data is a key challenge. Drilling down into this problem, a further poll showed that sourcing real price data for non-modellable risk factor assessment, and time series data for the default risk charge and expected shortfall are the biggest pain points.

Picking up on data sourcing problems, Rank-Broadley agreed that real price data is a challenge, saying: “Banks have not been asked for this data before, so it can be a problem. They also need market data and reference data, and must meet requirements around risk factors to gain regulatory approval for an Internal Model Approach (IMA). Here, we are trying to help banks that have good internal data, but no consistent view of external data by sourcing that data for them.”

Looking at how banks can approach the data management challenges of FRTB, Goddard said: “The business needs to be involved as there are many big data management challenges. Data needs to be at the centre of any programme, while the requirement to combine a lot of data presents an opportunity for banks to organise their data estates better, which would be a benefit for the business.”

Van der Leest added: “At ING, we are progressing with a large team. Some requirements are clear, such as the need to centralise data, and we can work on them. Real price data is a slow-moving dialogue across banks and data vendors, and there is no yet final clarity here yet.”

The panel considered technology solutions for FRTB, noting the need for data back to 2007 to calculate expected shortfall, as well as the potential to include FRTB in a harmonised approach to several regulations.

Considering how the modelling elements of FRTB could impact trading desks, Browne explained: “FRTB makes fundamental changes. Market risk capital must be calculated at trade desk level, where it has previously been calculated at the business or firm level, and the head of each trade desk must decide whether to invest in data to be able to make calculations using the IMA. That’s a big call for the head of a trading desk and the decision needs to be made by working with risk, finance and IT.”

Closing the webinar with advice for data management practitioners working on FRTB, the speakers said start early, agree a data model and get the design right – if you do this, you have the potential to build a data repository that will make your bank regulation proof.

Listen to the webinar to find out more about:

  • Industry progress on FRTB
  • Data sourcing challenges
  • Data management issues
  • Approaches to compliance
  • Expert advice on implementation
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