FRTB management solution of the year: LSEG Data & Analytics

Asia Risk Awards 2023

When it came to preparing for the Fundamental Review of the Trading Book (FRTB), 2022 was a challenging year for Asian banks. Most jurisdictions have set FRTB regulatory deadlines for 2025, and some banks have started implementation, while others have been asked to perform quantitative impact studies by regulators. Reporting standards differ between countries, making FRTB a costly and complex endeavour for many regional banks.

Against this backdrop, LSEG Data & Analytics’s data and technology platform, Trade Discovery, is helping to make the overall implementation of FRTB more efficient and resilient.

“FRTB poses a substantial data challenge for banks around the globe, and particularly for banks seeking to implement the advanced approach,” says Kristin Hochstein, global head of pricing and reference services at London Stock Exchange Group (LSEG). “Trade Discovery provides the data and calculations that these firms need to enable their advanced approach compliance processes to be more efficient and less time-consuming.”

One judge who identified LSEG Data as a clear winner said that, while for some LSEG Data might seem a left-of-field choice, “without the correct market and trade data, no bank can fully meet the FRTB internal model approach, even with the right software”.

A unique approach

Without giving too much away about its proprietary data management platform, LSEG Data says it is underpinned by a “unique approach” that improves the accuracy of information for clients, enabling them to reduce the compliance costs they face when meeting the Risk Factor Eligibility Test requirements of the internal models approach (IMA).

For transparently traded markets, furnishing clients with an abundance of data points might not be too taxing, but for the somewhat murkier world of over-the-counter products, difficulties can arise.

LSEG Data’s platform overcomes some of these hurdles by leaning on major regulatory transparency initiatives, such as the Trade Reporting and Compliance Engine from the Financial Industry Regulatory Authority in the US and Mifid II in Europe.

In other markets where such transparency initiatives have not yet taken hold, which includes large parts of Asia, LSEG Data partners with established market infrastructure providers to shine some light in the shadows. LSEG Data’s latest partnership, with LCH and Tradeweb, was finalised in November 2022.

LSEG Data says shining a spotlight on the opaque OTC world in this way significantly cuts down on the amount of time and resources needed for achieving IMA compliance under FRTB. Partnering with infrastructure providers also removes the need for banks to make any direct contributions to the service, significantly reducing operational complexity and implementation costs.

Highly versatile

Under the FRTB framework, banks must be responsible for the mapping process between risk factors and the real price observation (RPO) point. Thanks to the provision of RPO data at instrument level, LSEG Data offers banks a high degree of freedom and flexibility to develop their own policy for such mappings.

Normalisation of the data further improves the efficiency of the process.

Redundant data for same-day observations is stripped out, in a process known as deduplication, and deferred publication processing helps make sure clients only receive the information they need to pass RFET.

Standardisation is another key component of the solution.

While LSEG Data’s platform draws on data from many different sources, such information is aggregated and fed into a consistent data model that is in line with the latest industry standards. This improves the speed at which firms can align it to their internal process and structures, affording them the flexibility to map observations to risk factors based on their own internal methodology, rather than that of some third-party provider.

Customer support

LSEG Data’s client support has also been well received in the market, with skilled staff available to help customers quickly and easily incorporate the datasets into their workflow. Also, once customers are live, LSEG Data provides both content experts on the different asset classes and technical experts that can help to address any data or technical queries.

As a result of improvements to its FRTB service, and the diligent support given to its customers, LSEG Data’s Enterprise division – which delivers Trade Discovery – saw a 7.9% increase in growth in the first quarter of 2023.

LSEG Data says “we continue to see strong demand for our data, with growing usage, good renewal rates, and a number of new contracts”.

LSEG Data has an annual company turnover of US$6.25 billion. It also has 40,000 customers and 400,000 end-users spread across 190 different countries.

LSEG completed its acquisition of LSEG Data at the start of 2021, a transaction that has afforded the data provider fresh opportunities for delivering value to its clients through a healthy mix of product innovation, scale efficiencies and synergies.