Some Australian banks should reconsider their business strategies in light of the Fundamental Review of the Trading Book (FRTB), according to a white paper from Wolters Kluwer Financial Services.
The paper explores the impact of FRTB on banks in Australia, and argues that the new regulatory and risk obligations mandated by the review mean more sophisticated IT infrastructure will be required. The costs of this could force banks to re-asses their business plans.
FRTB is the latest revision of trading book capital rules from the Basel Committee for Banking Supervision, and is intended to reduce global financial risk, particularly relating to the regulatory framework around trading books.
Banks will have to respond quickly and accurately, and in order to optimise capital, they will have to identify all asset classes and trading desks that contribute to capital change.
This means that all underlying data will have to be consistent, and, according to the report, IT infrastructures may need an update in order to be sophisticated enough to analyse the required data and flexible enough to extract the required information at short notice.
Soon Kit Tham, a risk specialist at Wolters Kluwer Financial Services and author of the report, said: “The cost consideration may be the key factor in determining whether some market participants decide to completely overhaul their business strategy, concluding that the new rules are too onerous and compliance is too difficult and costly.”
She added: “Much of what is being proposed in the FRTB could be implemented in 2017. Banks need to start planning and implementation as soon as possible, in order to allow for adequate testing time. Put simply, time is running out.”
