FRTB: Incorporating a strong governance and controls process

FRTB: Incorporating a strong governance and controls process

By Harshal Talati, Head of Market Risk Reporting at the Royal Bank of Scotland.

Harshal, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I started my career in the year 2003 as an auditor with Ernst and Young India after completing my Chartered Accountancy in May 2003.

I got an opportunity to join Barclays Capital Singapore in February 2005 from where I started my journey in investment banking. I was soon recognized for my approach and work as I was moved to Barclays Capital London in September 2008. I still remember, I landed in London 5 days after the collapse of Lehmann Brothers. I joined RBS in October 2010 as the head of Group Market Risk Reporting. In October 2013, I took over the entire operations of reporting and controls function for Market risk. Market risk is one of the most dynamic risks; my team is engaged in running a steam engine every day and the pace at which the regulation is changing complemented with the cost pressures at RBS, the journey is filled with excitement.

In my current role, I head up the Global Market Risk Reporting & Controls team; Our objective is to enable excellent risk management. The role requires managing a BAU team of 25+ people in India, UK and the US. The team is responsible for ensuring the completeness and accuracy of the data quality for various key data elements presented in the daily market risk reports.

Over a period of 7 years in RBS, my role has evolved and has now become a hybrid between projects and BAU responsibilities. The BAU responsibilities take less than 10-15% of my time, thanks to the strong team I have in RBS. I strongly believe in the phrase – you are as good as your team. Over 80% of my time is spent on Projects like BCBS 239 compliance for Traded and Non-Traded Market Risk, Ring-fencing for Market Risk and strategic reporting process (which covers FRTB and future architecture post ring-fencing).

My immediate focus is to deliver the requirements for various work-streams under the BCBS 239 (Risk Data Aggregation & Reporting) as the firms are required to be compliant by December 2017. In addition, I sponsor the market risk reporting stream for Ring-fencing regulation and strategic reporting platform in light of fundamental review of trading book and other transformational projects running in the bank.

At the FRTB Summit 2017, you will be speaking on your insight regarding – Incorporating a strong governance and controls process for FRTB implementation. Why do you believe this is a key talking point in the industry right now and what can risk professionals gain from this insight?

The FRTB regulation focusses on governance and controls at every level, beginning with capitalizing the desk through standard approach and then through the modelled approach. Governance on these approaches and relevant controls will play a pivotal role in managing the various obligations to the regulator, senior management and the shareholders.

Today, with so much focus on regulatory compliance, companies have to be very careful to ensure attention remains on evidencing the governance; which comes from a strong policy and control framework.

All new regulations that have been introduced in past few years like the Volcker rule, BCBS 239, ring-fencing of the UK retail banks and FRTB have had a significant impact on controls and reporting. The existing controls have been enhanced and new ones have to be introduced as part of future regulation. The industry needs to respond by linking up the controls & governance framework to provide the senior stakeholders and the shareholders the confidence on the information provided to them.

Each regulation is demanding evidence of control on every single data point which changes into meaningful information. Of all the recent regulations, FRTB will have the most significant impact. I say this because with FRTB, the focus increases on desk level governance and controls as well as top level risk appetite, board reporting and annual disclosures.

In my presentation in the November summit, I plan to discuss in detail the importance of completeness, accuracy and timeliness of data quality and how we could potentially evidence the compliance to the law. I would also like to bring some thoughts on the current vs. future governance framework and how this will enable banks to remove silos across functions which need more integration in future.

What are the essential considerations that need to be made when removing silos across desks, finance and front office?

All the regulations that the banking and financial services face imminently or in the next couple of years, like the BCBS239, MIFID II, FRTB and ring-fencing for UK banks, the boundaries between FO, Risk and Finance is becoming more pronounced. However, the technology is moving towards golden sources and firm wide uniform taxonomies.

There is an increasing need as well as an opportunity for these functions to use the same trade, market data and reference data for the calculation of risk and profit and loss. All banks are trying to achieve the objectives of transparency, simplicity and cost constraints.

Essential considerations will require us to challenge the status quo; the current vs future of the organizational set-up, IT Infrastructure, Cross function portfolio team, models team and services.

In your opinion, why is it important to demonstrate data lineage?

Demonstrating the Data Lineage is the first and the most logical step to understand the golden source for the data elements utilized by Front Office, Risk and Finance. The data lineage if done at the correct level and granularity (as devil is in the detail) could reveal some very important issues that need to be addressed, while some could be trivial; others can be highly complicated. Also, data lineage helps in quick resolution of issues related to dataflows.

The Data Lineage is one of the critical deliverables under BCBS239 and will be needed for all major upcoming regulations. As a part of FRTB, banks want to consolidate the golden sources and break the silos; demonstrating data lineage is the first step towards this goal.

What, in your opinion does the future hold for market risk professionals, and how can they keep up the increasing change?

The whole banking sector is going through a big revolutionary phase. Jobs that needed a human being are now being replaced with robotics and Artificial Intelligence.

A market risk professional is now expected to contribute much more than his peers were contributing 5 years ago. There is a constant pressure to be innovative and resourceful.

The complex regulations and the lower risk appetite are squeezing the business and structured and complex products have become the thing of the past for most banks. The board of directors/ senior management have been more focused on the risk taken by the desks. This is an opportunity for someone who can simplify the reporting commentary to make the board understand the exposures correctly.

Being in Market risk is a challenge, but it is also a very exciting place to work as it offers dynamism, opportunity and a once in a work-life chance to deliver such a large change.

The mindset of the market risk professional needs to be very strong and focused. One has to keep up to date with the knowledge of the regulations, focus on the job and at the same time influence and drive various projects which will impact the organization for years to come.

I suggest that every Market Risk professional should treat the current scenario as a journey and enjoy the ride with like-minded professionals.

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