The Basel Committee’s Fundamental Review of the Trading Book (FRTB) will cause ‘fundamental’ changes to the industry’s market risk capital framework, and in turn, prompt a broad set of data management challenges. Those challenges relate to every stage of the data management process – from data acquisition and consolidation, data storage, data derivation and analytics, data distribution and visualisation, through to demonstrating data lineage and process auditability, and the identification and management of risk factors.
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 the viability of their trading operations. Accurate data will be a crucial factor, not only in helping guide those strategic decisions but also supporting ongoing trading operations.
Some examples of specific data management challenges any FRTB solution will need to address include: the need to carry out back-testing and P&L attribution (for risk models at an individual desk level); the move from VaR to Expected Shortfall (which is inherently more sensitive to data outliers); and the identification of modellable risk factors (and potential need for data remediation efforts to meet the criteria for modellability).