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Could SaaS be the Key to Unlocking FRTB Complexity?

By Andre Burrell, Director Industry Solutions for Cloud, Banking and Capital Markets, Microsoft on May 11, 2017

Filed under Financial Services - Banking & Capital Markets

As the deadline to implement the Fundamental Review of the Trading Book (FRTB) approaches, banks must be ready to prove regulatory compliance. Over the coming months, we’ll be blogging about some of the groundbreaking ways that Microsoft and partners are guiding banks through the transition. Today’s blog post features Numerix, a Microsoft partner helping banks embrace cloud technology as they prepare for FRTB today, and build a strategic FRTB program for the future.

Financial industry regulation is intensifying— banks must act now to keep up

Today’s financial services market is highly competitive, complex and regulated. New rules make it increasingly important to reduce risks and improve efficiency. The financial crisis of 2008 exposed material weaknesses in the framework for capitalizing trade activities, and regulators made aggressive moves to revise standards for minimum capital requirements for market risk. This decision led the Basel Committee on Banking Supervision (BCBS) to build on previously established capital rules and introduce the Fundamental Review of the Trading Book, or FRTB, with the primary goal of increasing capital requirements and safety among financial institutions.

To avoid losing out on supervisory approval for using internal models and calculation methods, banks must demonstrate front office and middle office risk system alignment. Meeting the 2020 deadline will be no small feat; especially since any solution used for FRTB must pass a 12-month accreditation process. Since FRTB requires a fundamentally different way of managing risk, many banks are struggling with the path forward and are in various states of readiness. Currently, 41% of banks expect the existing FRTB timeline to be a challenge based on the immediate status of their implementation. [1]

Making matters worse, the risk management solution marketplace is severely lacking as there are a limited number of solutions ready today. Many banks look for technology providers to help – but find that most FRTB solutions are still works-in-progress and unavailable for implementation or testing.   Many are thinking they will wait for more options, but with the deadline looming, banks run the risk of backing themselves into a corner. Other banks are looking inward hoping to find answers, attempting to cobble existing systems together to create a workable solution. Unfortunately, this “hack and hope” approach might put banks at risk if their FRTB band-aid does not pass the regulators’ strict accreditation process. Proceeding with uncertain homegrown FRTB functionality or waiting on an external in-progress third-party solution are both risky strategies, especially given the scope and scale of the changes required.

The option that many banks haven’t considered

While some banks will end up waiting on a promised vendor solution or building their own custom solution, others will find a third and superior alternative to this problem: a SaaS solution.

“With the emergence of fintech and regtech providers, an increasingly collaborative stance is starting to arise between financial institutions, which is gradually changing the posture of regulators as well; they now see cloud as a help to re-thinking the process of regulation and compliance”

-Accenture[2]

With its near limitless scaling, cloud delivers processing power in an on-demand, cost effective way that an on-premises solution could never match. For example, the per-desk calculation requirements for FRTB require the computational power to run 8.75 billion potential simulations.[3] Trying to support this type of bandwidth with on-premises infrastructure is not realistic when the impact to other business-critical systems is considered. The flexible nature of the cloud also makes it possible for any SaaS solution to quickly adjust as requirements change. Eventually, all FRTB solutions will help banks maintain compliance, but banks need a solution fast.

Before they deploy new systems and make dramatic organizational changes, banks must assess the impact of FRTB and analyze different desk configurations to minimize additional capital requirements. This pre-FRTB quantitative impact analysis on different desks and portfolios requires business impact analytics and decision support capabilities. The best way to do this is to use a flexible cloud solution that will help banks determine the impact of FRTB on their current operations and prepare them for the accreditation process.

The good news is, there’s help

Numerix FRTB, built on Microsoft Cloud technology, is a high-performance, agile, and quickly implementable SaaS solution for FRTB that is available today. Numerix and Microsoft’s partnership provides customers with a solution that has the computational power and speed to support the volume of potential calculations that must be run to demonstrate compliance daily.

The solution helps customers navigate the early stages of FRTB compliance through impact assessments. These impact exercises provide insight into how FRTB will affect their organization and influence planning for ongoing compliance. Taking a proactive approach to FRTB translates to a competitive advantage. Early adopters who achieve lower capital costs are more likely to gain trade pricing advantages and increased market share.

Learn more about Numerix FRTB and get started today

When it comes to FRTB, there is no question as to “if” banks must plan, develop and execute upon a strategy. Thanks to Numerix FRTB, “when” doesn’t have to be a question either. Although the FRTB landscape is complex, banks can rest assured that there is a trusted, proven, and, above all, a real solution available now to help accelerate FRTB-readiness. The solution empowers banks to deploy quickly, enabling early adopters to beat the “regulatory queue.” Try the demo for yourself on Microsoft AppSource today.


[1] https://www.bloomberg.com/professional/blog/banks-target-2019-frtb-deadline-spite-regulator-delays
[2] https://www.accenture.com/us-en/insight-investment-bank-challenge-07-moving-to-cloud
[3] http://www.numerix.com/impact-report-xva-and-risk-transformation-establishing-data-fundamentals

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