Regulatory capital calculation product of the year
The regulatory capital implications of the Fundamental Review of the Trading Book (FRTB) for market risk (FRTB‑TB) and credit valuation adjustment (FRTB‑CVA) could radically transform banks’ strategy and product offerings. As a result, banks need analytics tools that not only support compliance, but also help them devise strategies for how they will position themselves in this new world in terms of desk structure and franchise value.
IHS Markit’s regulatory capital platform enables banks to model and manage market data, risk factors, scenarios and capital calculations for compliance with the full standardised approach
(SA-TB and SA-CVA) and the internal models approach (IMA-TB) of the regulation. Banks can gain a comprehensive view of their resource requirements, taking into account the effects of assumption changes, varied data inputs, different desk configurations and internal model failures. The platform offers dynamic capital assessments for accurately estimating capital requirements under the FRTB‑TB and FRTB‑CVA frameworks. The platform can adapt to changes in regulation, enabling banks to see how capital demands would be affected by different calibrations of regimes.
IHS Markit recently opened its Risk Factor Utility risk factor modelling environment, combining cross-asset transaction and historical pricing data with analytics, which acts as an integrating hub of heterogeneous data sources. It has also extended it to include regulatory stress testing and expanded FRTB modellability beyond rates and credit to include bonds, equities and foreign exchange, with a focus on non-modellable risk factor proxy analyses across asset classes.
IHS Markit’s solution has an open and flexible architecture and is designed to co-exist with banks’ existing infrastructures, leveraging existing valuation engines to offer a less invasive and more cost-effective compliance solution. Supercomputing and big data concepts, such as the vectorisation of calculations and MapReduce aggregation, enable high performance.
Andrew Aziz, global head of financial risk analytics at IHS Markit, says: “What really makes our solution stand out is that banks can start right away with a low-lift capital impact study to accurately estimate capital requirements under FRTB‑TB and FRTB‑CVA, and make strategic decisions early on in an implementation. The capital assessment is seamlessly integrated with banks’ existing trade valuation engines and can then be easily transitioned into a production-strength platform for compliance as firms move to parallel run and IMA capital reporting.
“Our flexible, agile architecture enabled us to incorporate the final FRTB‑TB guidelines published earlier this year almost immediately after they were released. Our clients really appreciate this responsiveness to the changing regulatory landscape.”
“IHS Markit has cleverly introduced an integration environment that can leverage existing client and other third-party components. Apart from its FRTB datasets, which are the company’s traditional business and a core competence, it is selling engine-agnostic solutions running on its Risk Factor Utility – a heterogeneous assortment of data sources that have been normalised.”
“IHS Markit focuses on an area of concern to banks – the future viability of a regulatory capital solution within changing regulatory landscapes.”