FRTB, margin financing and fintech

FRTB implementation runs into hidden obstacles

MARGIN FINANCING is a systemic risk, CFTC says

STRATEGIC INVESTING upheaval as fintech booms



The result was published at the start of this year, but the real work has only begun. The Basel Committee's Fundamental review of the trading book (FRTB) was finalised in January this year, and banks around the world must be compliant by the end of 2018; the first reports under the new rules are due a year later.

Given that compressed timescale just three years, of which one has mostly passed already – it's worrying that so little clarity exists about exactly what compliance with FRTB will mean. A promised FAQ on the rules has yet to appear. No jurisdiction has yet drafted its final rules for FRTB implementation. And many banks are facing a dilemma – either accept the higher capital charges involved in the simpler standardised method, or wait and see for the more advanced approach, and hope the cost and difficulty of implementation are not overwhelming.

There are questions over the exclusion of 'immaterial' risks, which are harder to model; over the abolition of faster methods for calculating market risk sensitivity, such as adjoint algorithmic differentiation or AAD; and most seriously over profit-and-loss attribution.

Time is running out already, and, inevitably, compliance and risk departments will have other unpredicted calls on their time over the next two years, as well as the demands of all the other regulatory changes also coming into force over the same period. It would be no surprise to see a significant increase in hiring between now and mid-2017, as they start to staff up to deal with their many deadlines.



The world's top 12 investment banks have paid out $144 billion in penalties since 2012, which has a double impact: capital is being tied up in reserves and – with regulators on the warpath – banks are also wary of getting into a consortium that may later be cast as anti-competitive.



"In global payments, the potential to use distributed ledger technology is relatively high. However, despite statements to the contrary, the existing payment system is expensive but not broken, so competition will be tough" – Alexander Lipton


Bank prop indexes threatened by US tax changes
IRS's Section 871(m) rule places burdensome requirements on non-qualified indexes sold to non-US persons

EU non-cleared margin regime set to take effect in January 2017
The EC is expected to publish its final non-cleared margin rules on October 4

Banks warn prime brokerage clients of ‘material' MVA costs
Some buy-siders reassessing relationships as a result

Banks seek clarity on risk retention capital charges
CMBS issuers in dark about how much capital to hold against risk retention exposures

UK repo decline sparks NSFR tussle in Europe
BoE and EC concerned about repo liquidity, but Basel Committee unlikely to budge

Why Europe's insurers can't stop buying bonds
Solvency II has encouraged firms to run positive duration gaps

Plastics hedging rising amid US chemical industry boom
Interest in plastics derivatives is rising as a result of changing market dynamics, but major obstacles still limit its growth potential, finds Stella Farrington

FSB holds too much sway over US regulators, say Republicans
Lew faces questions in Congress over FSB impact on US banks and markets

Bankers fear confusion over Basel IRRBB disclosures
Differing discount methods and EVE approach will need explaining to investors


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