FRTB (Fundamental Review of the Trading Book)

Introduction and Overview 

The Fundamental Review of the Trading Book (FRTB) overhauls the market risk capital framework to meet the objectives of the Basel Committee’s (Committee) efforts to address shortcomings of the current Basel 2.5 market risk capital framework and reduce variability of market risk weighted assets (RWA) across jurisdictions 

The negative impact upon capital-markets and investment-banking returns on equity (ROE) for Banks due to the implementation of FRTB is anticipated to be approximately 16% (from current levels of 15,50% to 13,20%, for South African Banks). Beyond the additional surcharge to costs that Banks have had to swallow over the last decade, FRTB final implementation in 2022, promises to be a watershed in the manner in which Banks will need to design and construct their ERM market risk database for both efficiency & supervisory sign-off. 

In a recent market survey some 70% of Bank’s Risk Desks could not adequately explain P&L  and its drivers, thereby failing the BIS’ new Backtesting and P&L attribution test. It is an imperative that Banks use the window of opportunity between now and January 2022 to understand the breadth of changes needed in order to meet the requirements of FRTB. These adaptations include elements of data architectural design, data collection methodologies, quantitative aspects of modelling including the move from VaR-based RWA calculations to a more punitive Expected Shortfall approach; and most significantly implementing the Boundary between the Trading & Banking Books eliminate the potential for capital arbitrage. 

The course will be presented online, 3hrs a week over 6 weeks focusing upon the following learning objectives 

  • Understand the “Minimum Capital Requirements for Market Risk Standard”, which has recently been finalised by the BIS 
  • Recognise the delineating the Boundary between Bank and Trading books  
  • Analyse the regulatory perspective and implementation requirements for FRTB 
  • Understand amendments to the Default Risk Charge (consistency with IFRS 9 and Expected Credit Loss calculations)  
  • Discuss implementing stand-alone trading desk approaches consistent with an ERM-based regulatory capital reporting interface 
  • Consider the implications of adopting a Standardised or Internal Models Approach 
  • Recognition of the data and systems architecture design challenges to being FRTB-compliant by January 1 2022 


Who Should Attend 

  • Market Risk Management 
  • Trading Book Capital Management 
  • CVA & Risk Capital Management 
  • Collateral and Liquidity Risk Management 
  • Quantitative Analysts  
  • Bank Data Architecture & Systems Analysts 

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