FRTB serves to promote credibility and consistency for market risk modelling by making the Standardised Approach (SA) method more risk sensitive. The FRTB updates include explicitly capturing default risk and other residual risks, as well as amending the current Internal Models Approach (IMA) method. The Credit Valuation Adjustment Framework has also been updated to align to the new market risk framework.
To comply with the FRTB requirements, one of our retail, corporate and investment bank clients planned to create a centralised data store to host all the necessary risk factors. They also made the decision to move their current IMA process utilising the Value-at-Risk (VaR) metric into a new, approved FRTB vendor solution.
Monocle worked on the technical documentation and process flows for the entire FRTB programme, as well as the risk factor bucketing and definitions for the SA and VaR calculations. Monocle was involved in the migration of VaR from the current risk engine to the new risk engine and assisted in building out the Credit Valuation Adjustment models to align with the revised framework. As part of the overall VaR migration project, Monocle assisted in recreating the market risk and regulatory hierarchy for the FRTB solution and validated the risk factors, scenarios and subsequent VaR results between the two risk engines. Finally, Monocle was tasked with assessing and improving the IMA default risk charge (DRC) model by evaluating the data flows of the SA to improve synergies between IMA DRC and SA data processes.
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New and improved FRTB vendor solution for VaR metric
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A centralised data store that will host all risk factors that are applicable
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A new aggregation and reporting engine and tool
