FRTB Solutions

Understanding FRTB and its implementation:

The Basel Committee on Banking Supervision (BCBS) published a set of guidelines known as the Fundamental Review of the Trading Book (FRTB) in January 2016, which was later revised in January 2019. The FRTB was meant to initiate a new market risk-related capital requirement for banks that would strengthen the financial system. The FRTB was brought in to avoid a repeat of the financial crisis of 2007–2008.

The main elements of the FRTB guidelines include:

• A clear and impermeable boundary between banking and trading books.
• Replacement of value-at-risk (VaR) by an expected shortfall (ES) as a risk measure. This allows banks to take into account tail risk events.
• Revised expected shortfall-based Internal Model Approach (IMA) with differentiated liquidity horizons.

The FRTB allows banks to use their own internal models for calculating capital. The modelling is more complex as part of the IMA, but it carries less capital. The IMA needs to factor in add-ons for the non-modellable risk factors that do not have sufficient data along with the application of ES. The other option that banks can choose to understand their capital requirements is the SA which carries more capital and is directly implementable. A bank’s model must pass two tests: a backtest  and a profit and loss attribution test if it wishes to qualify for the IMA.

GreenPoint’s FRTB practice is comprehensive and ranges from core systems and implementation to advisory and challenger models. We have strong, best-in-class, practitioner-driven subject matter expertise supported by research and analysis. Our partnership with ActiveViam positions us as the strongest global provider of end-to-end turnkey FRTB solutions.

GreenPoint’s tailored consulting services on FRTB:

The contribution of FRTB to an increase in capital charge has attracted the attention of many banks’ senior management. The wide gap between the standardized (SA) and internal model approach (IMA) has helped create the stage for competitive rebalancing across the industry. This can be efficiently incorporated with GreenPoint’s FRTB CHALLENGER platform with minimal downtime.

About the FRTB CHALLENGER:

• GreenPoint’s FRTB CHALLENGER platform is an industry-leading end-to-end solution for banks to ensure best practices and validate their quantitative frameworks.
• FRTB CHALLENGER is a turnkey cloud-based solution in partnership with ActiveViam, an industry-leading platform being used by numerous global banks.
• FRTB CHALLENGER is integrated with consulting services and authoritative subject-matter experts supported by extensive research and quantitative impact studies.
• FRTB CHALLENGER is provided at fixed-price license, implementation, and consulting services with definitive turnaround timeframes for banks to comfortably meet regulatory deadlines.

Besides FRTB CHALLENGER, our other consulting services include:

• Regulatory Trading Desk (RTD) analysis, configuration, and optimization
• FRTB NMRF Minimization Studies
• FRTB P&L Attribution Benchmarking
• FRTB Model Validation

GreenPoint’s FRTB tools and solutions:

• White papers that simplify and explain complex FRTB protocols.
• Books such as “The FRTB: Concepts, Implications and Implementation”, authored by GreenPoint’s founder and chairman, Sanjay Sharma, on understanding and implementing FRTB efficiently.
• Online courses on FRTB along with accessible study materials and resources on the subject.