FRTB: Why the answer to banks' data challenge lies close to home

Alexander Dorfmann, Director of Product Management at financial market infrastructure operator SIX, argues banks should leverage the data they have already collected from past regulatory initiatives to meet the challenges associated with the Basel III Fundamental Review of the Trading Book.

A year on from one of the most intense periods of market risk that financial markets have witnessed since 2008, and to everyone’s relief, we can definitively say that the banks have fared well. What could have spiralled into a financial crisis was handled well by the banks, in large part because of the Basel rules.

But despite this stability, banks still face an ongoing task to accommodate the demanding requirements of Basel – in particular with the Basel III Fundamental Review of the Trading Book (FRTB).

While FRTB’s suite of capital rules have been in the pipeline for years, there has been renewed interest – and concern – amongst banks about the data, calculations and risk modelling challenges associated with this regulation.

Ultimately, the data issue is key at this stage, especially as the calculation challenges facing banks are really an extension of the data hurdles. With two years to go until the go-live date for FRTB, the focus should be placed on ensuring that enough data is available on a daily, maybe even on a real-time, basis to make the necessary calculations in a timely and efficient way.

To do this, banks can – and should – look close to home for the answers.

Deep within the legacy structures at the world’s banks, are huge vaults full of useful data, generated and collected to meet the requirements of regulations from MiFID II, to EMIR, and BCBS 239 – all of which posed their own data challenges. As a result, there is significant crossover for the data required for FRTB and the data required for previous regulations.

The primary challenge for banks is releasing this data from the internal silos and making it ready for consumption across the desks that need it.

Tacking on extra software to legacy structures is not the right approach and will cost more in the long run. Ultimately, the solution lies in overhauling legacy IT and architecture and moving the data into platforms that enable multiple teams to derive what they need when they need it.

It is no surprise, then, that the cloud stands out as the technology of choice. This is especially true with market risk reports, which require real-time or close to real-time data. The public cloud is adept at enabling the provision of data on demand, while it also leads to lower overall total cost of ownership.

As with many regulations, there is an opportunity for banks to use FRTB to move ahead of the pack by becoming more operationally efficient. By reorganising and accessing the data already present within their legacy structures, banks can become more than just compliant. The business case for making these changes is strong, with real cost savings a reality from this data shakeup, as well as a strong foundation for tackling new regulations.

With over a year left to plan and prepare for FRTB, banks should be using the time available to complete the data puzzle, finding all the necessary pieces they have at their disposal. In the process, they may just find that the data needed for future regulations is also hiding in plain sight.


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