Fewer Than Half of Banks Ready to Deal with Impact of FRTB by 2022: IHS Markit Survey

IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions, today released the findings of a survey of global banks that examines their preparedness for the incoming Fundamental Review of the Trading Book (FRTB) guidelines. The ‘FRTB Readiness Report’ shows that only 44 percent of respondents globally believe their institutions will be ready to deal with the impact of FRTB by January 2022, the deadline for compliance.

The introduction of FRTB represents the most radical overhaul of banks’ risk systems and approach to capital management in recent years. One of the most challenging aspects is the management of non-modellable risk factors (NMRFs). According to the IHS Markit survey, 94 percent of respondents globally plan to use a mix of data pooling and proxying to manage NMRFs. When asked which asset classes are in scope for FRTB, individuals globally give interest rate derivatives the highest priority, followed by FX and cash bonds.

“Putting the right strategy in place to manage NMRFs will be critical to reducing the capital impact of FRTB,” said Gil Shefi, FRTB data product head at IHS Markit. “Banks will need to gather, cleanse and analyze huge volumes of transaction and pricing data across multiple asset classes to avoid punitive capital charges. However, very few banks, if any, have enough data in-house to meet NMRF requirements. Our survey shows that 91 percent of respondents globally will use a vendor for their NMRF solution as the only viable alternative for reducing their non-modellable risk factors.”

Separate analysis conducted by IHS Markit shows that a mix of pooling and proxying will deliver the best capital impact for banks. However, only 34 percent of respondents globally have a ‘pretty good idea’ of their proxying strategy and 38 percent of respondents have not started thinking about it yet, the survey said. A significant proportion of the market, therefore, risks falling behind the first movers who are well advanced with their proxying strategies.

“The clock is now ticking for FRTB compliance,” said Paul Jones, FRTB analytics product head at IHS Markit. “Most survey respondents are focused on upgrading or updating current risk infrastructure to comply with FRTB, rather than replacing systems altogether. We believe this is the right approach to compliance as banks don’t have the appetite, budgets or resources to rip and replace core systems.”

The majority of respondents (91 percent) expect to spend $40 to $99 million on their FRTB programs.

Notes to editor:

The survey questioned 34 individuals responsible for market risk and FRTB at IMA banks in North America, Europe and Australia in July 2018.

Further information

‘The FRTB Readiness Report’ is available for download here and provides an overview of the full survey findings, including regional splits.

For more information on the FRTB Solution Suite from IHS Markit, please visit: https://ihsmarkit.com/solutions/frtb-solutions.html

For insight and analysis on FRTB, download the FRTB thought leadership booklet: https://cdn.ihs.com/www/pdf/Thought-Leadership-FRTB-articles.pdf

About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its affiliates. All other company and product names may be trademarks of their respective owners © 2018 IHS Markit Ltd. All rights reserved.

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