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Bloomberg Poll Finds Banks Forging Ahead with FRTB Preparation, But Facing Data and Modeling Hurdles

March 16, 2021 GMT
Bloomberg
Bloomberg

NEW YORK, March 16, 2021 /PRNewswire/ -- After a year of turbulent market conditions driven by COVID-19, banks are continuing to prepare for the implementation of the Fundamental Review of the Trading Book (FRTB). However, progress is uneven across the industry, and the significant data and risk modeling decisions FRTB requires across an organization are posing the most difficult challenges, according to a recent poll conducted by Bloomberg.

FRTB, issued by the Basel Committee for Banking Supervision (BCBS) to revamp how banks across the globe approach market risk on their trading desks, is one of the most significant proposed regulatory changes to come from the wave of post-financial crisis reforms known as Basel III. While the implementation deadline for FRTB was delayed one year to January 2023 by the BCBS due to the pandemic, the first reporting deadlines are approaching in Q3 2021, and it remains a top item on the banking regulatory agenda.

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At a recent online event, ” FRTB – Nearing the Finish Line,” Bloomberg asked over a hundred senior trading, compliance and regulatory professionals from across the sell-side how their institutions are preparing for FRTB. As a result of the BCBS’ delay, over half (57%) of respondents1 said they have slowed their implementation program, with 47% saying implementation has “slowed somewhat” and 10% saying implementation has “slowed significantly.” Only 2% of respondents have accelerated implementation, and 41% reported no change of pace.

With the first reporting deadline approaching later this year, there was a similar split in how institutions are feeling about their preparation. Exactly half of respondents2 (50%) felt they were on target—barring minor challenges—to begin reporting later this year, and 3% said they had finalized their solution and had no open issues. However, the remaining 47% saw challenges ahead: 25% anticipated challenges implementing analytical system and risk sensitivity calculations, and 22% anticipated challenges in data bucketing and the treatment of funds.

“FRTB presents all of the major data challenges banks face in a nutshell, from cleaning the data to categorizing it and ultimately making it applicable for risk management and regulatory compliance,” said Brad Foster, head of enterprise content at Bloomberg. “The upcoming implementation of this major new rule should be a reminder for banks to evaluate their overall data strategy and make sure their data aligns across the front, middle, and back office, from the trading desk to the compliance department.”

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Indeed, data was by far the number one challenge identified to FRTB implementation. 59% of respondents3 said that the data aspect of FRTB was their main challenge, including cleaning data, obtaining historical data such as volatility and curves, data bucketing, and capturing real price observations for the Internal Models Approach (IMA). Other challenges respondents identified including deciding on the Standard Approach (SA) versus IMA (34%), and aligning market risk and front-office pricing models across the institution (28%).

“Despite the delay, banks should continue to keep FRTB implementation high on their radar,” said Eugene Stern, head of market risk product at Bloomberg. “FRTB is about more than just checking the boxes: it requires banks to make some major decisions about their risk management processes and data practices which go far beyond market risk. Combined with the ongoing LIBOR transition, the next two years promise to be full of change for the global sell-side.”

To read more about preparing for FRTB implementation, click here.

About Bloomberg
Bloomberg, the global business and financial information and news leader, gives influential decision makers a critical edge by connecting them to a dynamic network of information, people and ideas. The company’s strength – delivering data, news and analytics through innovative technology, quickly and accurately – is at the core of the Bloomberg Terminal. Bloomberg’s enterprise solutions build on the company’s core strength: leveraging technology to allow customers to access, integrate, distribute and manage data and information across organizations more efficiently and effectively. For more information, visit www.bloomberg.com or request a demo.

1. Out of 188 responses
2. Out of 111 responses
3. Out of 131 responses

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SOURCE Bloomberg