Executing the FRTB in practice and contending with timing constraints

Executing the FRTB in practice and contending with timing constraints


Pascal, can you tell the Risk Insights readers about yourself and your professional experiences?

I started my carrier in the FO back in 1987 and most of my experience is linked to equity derivatives structuring and trading. I switched to Risk Management about 10 years ago with a quantitative perspective covering Internal Model and pricing model validation for CACIB.

At the 6th Annual Banking Risk & Regulation Summit you will be participating on two panel discussions on FRTB interpretation and execution. Can you outline some of the interpretational challenges of the FRTB rules?

They are still many interpretation challenges of the FRTB rules but a couple of them are so significant that they generate a good deal of uncertainty and sometimes anxiety for the banking community: non modellable risk factors, adjustment included in the back-testing and finally P&L attribution.

How can market risk professionals better prepare for the infrastructural changes that the FRTB brings?

Depending on the type of VaR (MC or historical) and the current risk set-up (independent risk system or system shared with FO), the infrastructural changes can be very different for each bank. For Crédit Agricole, the challenge is to be able to compute and validate a considerably larger set of output to comply with FRTB. The overall infrastructure cannot be simply extended to accommodate the new requirements: it will be rebuilt with a new architecture to reach the target. In the process, other regulatory requirement can be taken into account (BCBS 239).

With FRTB implementation set for 2019, can you outline some of the areas banks are finding particularly challenging to prepare in time?

Given that the whole architecture is being changed, the whole project depends on the success of many different components. Obviously, NMRF and P&L attribution are challenging given the current uncertainty of the regulation but to some degree it can be clarified at a later stage.

How do you see the role of the market risk professional changing over the next 6-12 months?

Definitely, the regulatory changes since the 2008 crisis have dramatically changed the situation of the risk management. On the one hand, it has captured a lot of the available resources: an always larger portion of the market risk staff is dedicated to regulatory projects! On the other hand, some of these regulatory changes are also opportunities to revamp the risk management set up altogether. The changes that are currently engineered to cope with BCBS239 will greatly enhance the quality of our reporting and make most analysis a lot simpler to perform.
The recent evolution of market practices linked to XVA requires a new organisation that covers both market and counterparty credit risk at the same time. In that respect, the regulatory evolution with regards to CVA mainly and to other XVA as well will be critical for the future risk management in this new paradigm.

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