KPMG has been sounding out banks on the impact of the Fundamental Review of the Trading Book (‘FRTB’). Short answer: it’s complex and potentially costly.
At KPMG, we wanted to understand – 15 months after the publication of the final requirements by the Basel Committee – how banks are dealing with this regulatory burden, their approach to tackling the challenge in the face of the remaining uncertainty and what are the emerging leading market practices.
Based on our conversations with clients and using live polling from the recent Infoline FRTB Summit, we have observed banks making significant strides in relation to implementation programmes and creating awareness across their organisations. However, digging deeper has revealed a mixed picture.
Encouragingly, only a very small fraction of banks have not yet started to tackle FRTB, and approximately 60% have their projects well underway despite the unanswered questions that remain. Implementation costs on average may be less than originally feared (a year ago our Global Systemically Important Banks 'G-SIB' clients told us this would be approx. $100-150 millions), potentially as a result of banks now having had the opportunity to review all of the requirements. However, we observed significant variation between the high and low estimates, with approximately 20% of banks expecting to spend over $100 millions.
Most of our live polling respondents expect the implementation date to be 2021 (or sooner in some cases) which is in line with our current expectations of the go-live date for the market risk requirements in the Capital Requirements Regulation 2 (CRR2) in Europe. This in turn will begin a 3 year phase-in and monitoring period. Only 3% of the respondents expect FRTB to be mothballed.
To find out more, read the full Fundamental Review of the Trading Book in Industry Update report. (6 minute read)