FRTB Compliance Requires Your Bank to Reassess Data Strategy – What are the Essential Next Steps?

The Fundamental Review of the Trading Book (FRTB) from the Bank for International Settlements, Basel Committee, and the Financial Stability Board will increase the data demands put on banks. This update to the Basel 2.5 framework will implement far stricter rules when it comes to market risk, and it aims to address issues that the current framework suffers.

The new requirements which were adopted in 2016 will go into effect in 2019. The rules for Canadian banks will go into effect in 2020. Your bank is inevitably working towards adopting the rules, but is this task putting stress on your data? Industry sources reveal that the data demands necessary are greater than what most financial institutions currently have in place. Fortunately, since the deadline is still more than a year away, it allows your bank to approach these changes strategically.

Why FRTB?

The overarching goal of the new regulations is to ensure there isn’t another massive financial crisis like the one from 2008. The rule requires that banks steer away from value at risk, or VAR, and calculate toward expected shortfalls instead. The regulators also want to ensure that the banks consider their horizons so they have plenty of money to act as a cushion. The new rules require that the liquidity horizons are between 10 days and 120 days depending on the asset involved. One of the rules greatly affects data structuring for banks with a new standardized approach. Fortunately, Big Data has the ability to help in this aspect.

What Does the FRTB Do to Data Structuring?

With the implementation of the FRTB, there will be a single data source that pulls data from across a range of silos, including trade data repositories and the front office. The idea is to have all the source data centralized and available in a single location so the quality can then be trusted by those who access it.

According to the FRTB rules, the new approach is more sensitive when it comes to risk factors, and it will allow for a more consistent method of measuring risks across regions. The system should then make it easier to compare risks, and it will allow banks to have a common infrastructure between the Internal Model Approach and Standard Rules Approach. This will fundamentally change the way that many banks deal with their data. Is your bank scrambling and trying to figure out what to do next in order to be compliant?

Take Control of Your Data and Achieve Compliance Now

One of the best methods that can be utilized by banks when complying with the FRTB rules is to implement a data lake. It is essentially a “store everything” approach to big data, but in a governed, organized and “trusted” state. Only when the data is accessed will it be organized and classified.

Cornerstone®, our industry-leading Data Lake Platform, can and has enabled banks to implement “smart” data lakes very quickly and effectively. The sooner your bank’s IT team start to make these required changes toward compliance, the better.

If your organization is concerned about FRTB compliance, we have the right solution for you. Please contact us to learn more about your options.