The countdown for implementing FRTB has now begun in earnest. The revised market risk capital framework was agreed in January of 2016 and was originally due to be implemented by the end of 2019, although that timeline has now been pushed back to 2022.
Given that the new market risk framework will have a direct impact on capital requirements, and associated trading costs, banks will need to make key strategic decisions regarding their trading operations. The sooner that internal models can be calibrated and back-tested, the more time banks will have to take those decisions. Data management will not only help support those initial strategic decisions, but will also be of paramount importance for BAU operations as the new market risk capital framework is implemented.
Some examples of specific data management challenges include:
- The identification of non-modellable risk factors (and data remediation to meet the RFET criteria)
- The data management principles for calibrating models
- Back-testing and p&l attribution (at an individual desk level)
- The move from VaR to Expected Shortfall (which is inherently more sensitive to data outliers)