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Optimizing for FRTB: The Case for a Cloud-Based Approach

By Andre Burrell, Director Industry Solutions for Cloud, Banking and Capital Markets, Microsoft on September 7, 2017

Filed under Financial Services - Banking & Capital Markets

Tough decisions often force us to leave our comfort zones. Almost as often, they’re an impetus for growth. For example, after starting out as a black car service, Uber seized the opportunity to move into a more “low-end” market primarily held by taxis. Shifting focus into this area paid off; Uber held just shy of half of the market share 3 years after launching.[1]

The recent shift toward cloud technology is necessitating a similar departure from comfort zones in the banking industry today, and industry leaders are starting to make the change. In fact, JPMorgan Chase recently announced a move to the public cloud – and more banks will follow suit.[2] The cloud offers the enhanced efficiency, greater scalability and increased elasticity that banks will need to continue to reach their business goals. This is especially true when considering all the regulation faced by the financial services industry. One example of the cloud helping banks with compliance is the case of preparing for Fundamental Review of the Trading Book (FRTB), for which they’ll go live in 2020.

As banks prepare for FRTB, they must make tough choices about their technology and systems. The choice between an on-premises and cloud approach is just one of them, but it has an outsized impact on a bank’s chances of successfully preparing for FRTB and the future.

The perilous pitfalls of an on-premises approach

Any on-premises solution capable of meeting the compute needs of FRTB will be slow to implement, costly to deploy, and difficult to adapt to regulatory changes. Some banks are attempting to patch together quick fixes for an in-house, “hack and hope” solution, while others are relying on legacy technology vendors to deliver in time for FRTB; even though few vendors have a solution that’s currently ready. Though shifting toward the cloud may feel risky, pulling together a patchwork, in-house solution or utilizing legacy technologies that may or may not be able to achieve FRTB compliance is far riskier. Given the aggressive FRTB implementation timeline, banks might not even be able to deploy in-house or infrastructure intensive legacy systems in time.

Even if banks manage to implement on-premises systems in time for FRTB, they will still face issues. On-premises systems carry the risk of being too rigid and they require a dedicated IT server infrastructure, which is tremendously costly to deploy. Even if a bank has the capital, who’s to say if these systems will continue to comply with FRTB regulation over time, whether it’s in-house or third-party? Beyond that, the manpower and management adjustments that will be necessary to update technologies for compliance purposes will only continue to increase the total cost of ownership. Cloud-based systems may be newer to the banking industry, but they offer an alternative approach toward FRTB that enables banks to avoid the pitfalls of in-house or third-party methods.

The cloud is the clear choice

The cloud was built for complex business problems like FRTB – empowering banks with a high-performance, cost-effective, and quickly implementable system. The cloud provides the computational power banks need to run numerous FRTB reports and to demonstrate compliance daily. A cloud approach is also agile enough to run calculations multiple times per day if needed, and enables banks to generate reports on demand. With tremendous flexibility and near-limitless scaling, the cloud offers large cost savings over third-party or in-house infrastructures with similar capacity. Cloud solutions are quick to deploy, enabling banks to hit timing windows with ease, beat the regulatory queue, and improve their chances of being adequately prepared for FRTB.

Microsoft is partnering with Numerix to provide a viable cloud FRTB option

Numerix FRTB, built on Microsoft Cloud technology, enables banks to prepare for FRTB now with a fast, flexible, and comprehensive solution that will constantly update over time to remain compliant. Numerix is the industry leader in derivative pricing models and risk technology, offering deep capital markets technology expertise and proven analytics that are unparalleled in their speed and accuracy. The Microsoft Cloud offers banks a scalable, reliable, and complete approach to empower insight and intelligence, optimize compliance and risk management, and maximize security. The combined strengths of these industry leaders deliver the computational power, calculation speed, and complete proficiency banks need in an FRTB solution. If you’re curious to know more about how Numerix FRTB accelerates readiness with a secure cloud-based approach, check out the demo on Microsoft AppSource.


[1] https://www.forbes.com/sites/andrewbender/2015/04/10/ubers-astounding-rise-overtaking-taxis-in-key-markets/#4817cae743d8
[2] https://www.americanbanker.com/news/unexpected-champion-of-public-clouds-jpmorgan-cio-dana-deasy

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