Discussing industry approaches to planning and preparedness ahead of the 2022 FRTB implementation deadline

Discussing industry approaches to planning and preparedness ahead of the 2022 FRTB implementation deadline

By Neels Vosloo, Head of EMEA Regulatory Risk, Bank of America Merrill Lynch

Could you please tell the risk insights readers a little bit about yourself, your experience and what your current professional focus is?

I started my career in Risk as a quant developer, spent time as an internal model expert at the UK regulator (FSA and PRA), and was a consultant at a member of the “Big Four” before moving to my current role. My current focus is assessment and management of regulatory compliance within Traded Risk across EMEA.

What, for you, are the benefits of attending a conference like the FRTB Forum and what can attendees expect to learn from your session?

Even though there is still very significant uncertainty around many aspects of FRTB implementation, it is always good to hear the views of a range of participants. I hope that attendees will find my thoughts interesting: they can expect to hear a lot about the many moving parts of FRTB.

In your opinion, what implications will Brexit have on your work?

The industry’s Brexit preparations are of course focussed on ensuring that legal entity structures in the EU will enable continuity of operations in the event that there is a reduction in legal and regulatory alignment between the EU and UK post Brexit. For firms whose main EU base has been the UK this means dealing, for the first time in some cases, with regulatory requirements as applied by the ECB and national regulators in other EU countries.

Why is it so important to formulate a road map to implementation?

FRTB is a very complex regulation, the full implementation of which requires changes to models and systems across Front Office, Risk, and Finance, as well as associated Operating Model changes. At the same time there is likely to be regional variation in both implementation timelines and technical requirements, while at least one regulator (the ECB) has introduced guidance that could require earlier implementation of requirements very similar to elements of FRTB.

All of this requires a detailed understanding of compliance gaps against current and future regulation, and the scope and timing of work required to close these gaps.

How will approaches from UK, EU and US differ or align?

The UK regulator appears to have taken the lead in working with banks to prepare for FRTB, but in the rest of the EU it is clear that the ECB is taking a similar approach, and could be expecting large banks currently having internal model approval to continue using internal models under FRTB.

The EU has also published a draft regulation (CRR2) that includes an implementation of the FRTB standard.

The situation in the US is different: no notice of proposed regulation (NPR) covering FRTB has yet been published, although one is expected in the next few months. A key question is whether future US regulation will include a full implementation of FRTB.

What key point would you like to put across to the audience?

Banks’ approaches to addressing the complexity of FRTB will of course vary, but I think that it is important to maintain a detailed understanding of the implications of different implementation scenarios across all areas: from systems through to capital.

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