About a-team Marketing Services

A-Team Insight Blogs

One Year On: Banks Resume Prioritization of FRTB, but Same Challenges Persist

Subscribe to our newsletter

By: Essan Soobratty, Regulatory Product Manager, and Eugene Stern, Head of Market Risk Product, Bloomberg.

One year on from the start of the global pandemic which sent global markets into turmoil and prompted regulators to introduce a range of emergency measures to support the financial system and the broader economy, banks are continuing their return to business as usual.

The same goes for FRTB implementation. That was the verdict from a recent online event hosted by Bloomberg LP in London, ‘FRTB – Nearing the Finishing Line’.

The flexibility provided by global regulators which included extension in the timeline for FRTB was welcomed by the industry, but since January banks have resumed their prioritization of work towards achieving the necessary milestones required for an effective implementation.

As a recent Bloomberg poll of clients revealed there was a slowdown by most banks in progress made in 2020 as they redirected resources to the more immediate priorities of managing risk in the face of pandemic related volatility.

FRTB – a priority again, with work to do

The slowdown was short-lived with banks now returning to their pre-crisis focus on FRTB implementation:  They have resumed discussions with their regulators; they are continuing to work closely with their technology and data partners; and internally too for many banks there is a pick-up in cross-department activity especially between the groups most impacted by FRTB: front-office, risk and valuations. Alignment between these groups is still seen as critical for effective implementation, especially for those desks working towards adoption of the more challenging Internal Models Approach.

With just a few months remaining until the start of reporting for FRTB Standardized Approach in Europe under CRR-II which takes effect in September 2021, and less than 2 years to Basel’s January 2023 deadline for global implementation, banks continue to grapple with the same challenges they faced a year ago:

  • Acquiring, managing and aligning large amounts of data;
  • Making enhancements to risk models, the analytics produced, and the risk systems themselves;
  • Operational and technology challenges relating to achieving the necessary data and model alignments in a way that is automated;
  • Decision-making relating to IMA implementation: To what extent will IMA be sought for different desks and what will the timing of that application be?
  • Governance implications associated with implementing processes, and then reporting to regulators based on a complex set of rules.

Unresolved questions

Banks also continue to plan and implement against a backdrop of uncertainties relating to potential regional differences in implementation including staggered timelines and a number of regulatory ambiguities that banks say remain unresolved.

With Basel’s global framework now considered to be finalized, and with a framework based on multiple rounds of industry input, any remaining questions relating to specific implementation nuances needing clarification, will likely only be discussed within the industry and with local regulators over the coming year.  Very little scope or appetite is seen for making changes to the global framework, but at the same time alignment and consensus will be critical in order to minimize regional differences and therefore maintain the global consistency that the regulation seeks to achieve.

One area which banks have identified as needing additional discussion and clarification relates to the treatment of funds and specifically Collective Investment Undertakings in Europe given that EU reporting begins later this year.  While the prescribed guidelines under the finalized rules may be less onerous than those initially proposed there are some remaining ambiguities and challenges relating to both look-through and the alternative approaches permitted under the Standardized Approach.  Other areas include specific nuances relating to implementation of requirements in the Internal Models Approach such as Risk Factor Eligibility Test, and Modellability more broadly.

Lessons learned

One more significant theme for discussions in the year ahead is what the industry has learned from last year’s unprecedented market events. Banks and their regulators will discuss how banks managed risk, and protected capital in response to both the market and operational disruptions.

These insights and perhaps any lessons learned could influence how local rules are written that take into account local market nuances while at the same time maintaining consistency with the regulatory intentions captured in the globally agreed framework. Banks will need to be aware of decisions by their regulators and respond nimbly to local requirements, as the FRTB framework finally crystallizes ahead of the rapidly approaching global deadlines.

Subscribe to our newsletter

Related content


Recorded Webinar: Best practice approaches to trade surveillance for market abuse

Breaches of market abuse regulation can lead to reputational damage, eye-watering fines and, ultimately, custodial sentences of up to 10 years. Internally, market abuse triggers scrutiny of traders and trading behaviours; externally it can undermine confidence in markets and cause financial instability. This webinar will discuss market abuse of different types, such as insider trading...


ValidMind Secures $8.1 Million for Model Risk Management and AI Governance Solutions Development

ValidMind has secured $8.1 million in a seed funding round. The investment will focus on developing model risk management and AI governance within the banking and financial services sectors. The company says the seed round was over-subscribed, demonstrating support from investors in its long-term vision to be the certifying authority for all AI solutions, starting...


TradingTech Summit London

Now in its 13th year the TradingTech Summit London brings together the European trading technology capital markets industry and examines the latest changes and innovations in trading technology and explores how technology is being deployed to create an edge in sell side and buy side capital markets financial institutions.


The Data Management Implications of Solvency II

Bombarded by a barrage of incoming regulations, data managers in Europe are looking for the ‘golden copy’ of regulatory requirements: the compliance solution that will give them most bang for the buck in meeting the demands of the rest of the regulations they are faced with. Solvency II may come close as this ‘golden regulation’:...