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Market Risk

FUNDAMENTAL REVIEW OF THE TRADING BOOK (FRTB)

Market risk is undergoing significant change because of the implementation of the new Basel “Revised Minimum Capital Requirements for Market Risk” published in January 2016. The transposition and implementation of these standards will require significant effort from banks over the next few years.

Avantage Reply has an excellent understanding of the new requirements and has hosted events on the topic with banks, industry bodies and regulators.

OFFERING

Avantage Reply can help banks by implementing the requirements covering business analysis, change management, modelling and validation. In particular we have strong capabilities in the following topics:

  • Operating model design – Support the identification of areas of change, define target processes and controls and formalise these through changes to policies and procedures.
  • Modelling:
    • Define, build, test, and validate new models.
    • Create prototypes to support decision making by senior management.
  • Systems – Define business requirements and functional specifications, identify the target infrastructure, and support IT with implementation.
  • Data – Embed FRTB in the bank’s data management framework; e.g. with new data specifications and dictionaries.
  • IMA application - Prepare and review documentation for the internal model approval request.

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INTEREST RATE RISK IN THE BANKING BOOK (IRRBB)

Interest Rate Risk in the Banking Book (IRRBB) has been a key focus by regulators in Europe, highlighted by the Standards published in April 2016 by the Basel Committee, the subsequent proposals to transpose these requirements into the CRR, and the interest rate stress test exercise carried out by the ECB in early 2017. In 2018, the EBA will focus on this topic by amongst others reviewing the guidelines on this topic and creating new technical standards to ensure high standards of supervision on IRRBB.

OFFERING

Avantage Reply has helped banks with multiple dimensions of these requirements.

  • Change and remediation projects including re-developing new models, demonstrating non-materiality of certain elements, and developing statistical models focused on particular behavioural elements.
  • Although IRRBB projects have focused on the measurement of interest rate risk, to effectively do this a significant aspect is always the identification and correct understanding of the sources of interest rate risk.

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