Financial firms should start planning in advance for how well they’ll be able to comply with the Basel Committee for Banking Supervision’s (BCBS) proposed Fundamental Review of the Trading Book (FRTB) – or whether they’ll have to at all, according to a new whitepaper out by consultancy Wolters Kluwer Financial Services.
The FTRB is currently under industry consultation, and aims to address the management of risk within financial firms’ trading books. Since it is still in flux however, some firms who may consider themselves exempt from it could find themselves blindsided if they don’t look into the changing regulations ahead of time, according to Wolters Kluwer.
“Proposed changes may mean firms that currently do not consider [themselves to] have a trading book actually will do so under the new definition that could come into effect as soon as 2017,” Wolters Kluwer officials say, in a statement. “Specifically, [the FTRB] seeks to deal with what it considers to be weaknesses in the current design of the regulatory capital framework as it relates to the trading book, by applying more rigorous qualification requirements for both the trading and banking books and for changes in the constitution of both.”
“However,” the officials continue, “The regulators’ drive to simplify may introduce new levels of complexity. For example, larger, more complex banks are unlikely to forego their proprietary models at the drop of a hat. As a result the marketplace is likely to see a parallel operation of both internal and standardized models for risk calculation among many institutions.”
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