ISDA initiative to simplify FRTB compliance
Derivatives trade body ISDA plans to develop a standard set of data requirements to help banks comply with the Basel Committee’s fundamental review of the trading book.
Known in short as FRTB, the review overhauls how banks calculate their risk-weighted assets which form part of the equation that calculates banks' overall capital ratios.
ISDA aims to reach a common industry consensus on the interpretation of risk-factor modellability rules under the FRTB.
It then hopes to come up with a shared set of business requirements to support risk-factor assessment and data capture.
As an example - a risk factor must have at least 24 observations per year, with a maximum period of one month between observations.
An ISDA study earlier this year found that non-modellable risk factors could account for 30% of the internal models approach capital charge.
ISDA will establish a working group to lead and facilitate industry efforts to develop standard data requirements.
The working group will engage with both data vendors and regulators throughout the project.
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