Adapting FRTB strategies across Apac markets

As Asia-Pacific (Apac) banks face upcoming Fundamental Review of the Trading Book (FRTB) deadlines, MSCI’s Jeffrey Ho and Andras Rokob explore the insights from early adopters that can help them align with requirements

Jeffrey Ho, MSCI

In many countries, financial institutions are advancing through the compliance phases, with some aiming to meet FRTB deadlines as early as January 2025, though timelines may vary across regions.

In contrast, financial institutions in markets such as Australia, Malaysia and Thailand are preparing for deadlines in 2027 and 2028. Jeffrey Ho, executive director and analytics technical sales specialist for Apac, and Andras Rokob, vice-president, risk management research at MSCI, explore the key challenges and insights from these earlier implementations and how these experiences can help banks in other jurisdictions to prepare. These insights offer a road map for overcoming region-specific hurdles and aligning with regulatory requirements.
 

Global and regional challenges

One of the biggest hurdles in FRTB implementation is data accuracy. Ho says: “The accuracy of all descriptive data – particularly time series and risk factors used for pricing and risk calculation – is crucial. The calculation itself might not be overly challenging but, without correct data, banks will struggle to get the right aggregation and netting.” 

Ho emphasises that ensuring alignment between a bank’s pricing models and the FRTB risk factor requirements can also be tricky. “The devil is in the details,” he notes, as small discrepancies can lead to significant differences in capital calculations at trading desk and bank-wide levels. Local regulatory reporting requirements often add another layer of complexity that sometimes demands intermediate results not mandated by the global standards.

Andras Rokob, MSCI

In markets that are still in the early stages of FRTB preparation, addressing these challenges will be critical. Rokob adds that more advanced markets, such as Japan, Singapore and Hong Kong, have already experienced similar issues. As he points out: “There are closely interconnected markets – mainland China, Macao and Hong Kong, for example – that are treated differently under the FRTB framework. The distinction of where a firm operates becomes crucial for proper classification of equities.” Banks must ensure they properly classify and manage these assets under the framework – a task that demands meticulous data handling and robust technological solutions. 

“Precise alignment of pricing models with FRTB requirements is also key,” he says, highlighting the need for careful consideration when modelling exotic derivatives, particularly in markets such as Japan and Hong Kong, where these complex products are more prevalent.
 

Navigating regional regulatory nuances

The diverse regulatory landscape across Apac presents additional challenges. This differentiation is not only regulatory but also technical, as local authorities often impose specific requirements regarding data privacy and system infrastructure. MSCI’s solutions offer flexibility through both hosted and locally installed versions, designed to help banks align with varied regulatory requirements. For instance, some markets embrace cloud-based systems, while others prioritise stricter data security laws. Ho emphasises the importance of MSCI’s ability to adapt: “We can offer cloud-based and local on-premises FRTB solutions, ensuring banks don’t need to send data off-site, which is crucial for jurisdictions with strict data security requirements. For markets such as Thailand and Malaysia where data security regulations are less stringent, our clients can choose solutions that best fit their needs.”

A critical aspect of this localisation is MSCI’s regulatory expertise. With extensive experience working across various Apac markets, the firm has developed a nuanced understanding of each jurisdiction’s regulatory needs. This expertise extends beyond product deployment; it involves active collaboration with local regulators and industry associations. “Our approach is collaborative,” explains Ho. “We engage closely with regulators to ensure our solutions are aligned and well informed, allowing us to help foster better communication between market participants and authorities.”
 

Adapting FRTB solutions for diverse Apac markets

MSCI’s experience with FRTB implementation in markets such as Japan, Singapore and Hong Kong offers valuable lessons for regions that have yet to implement FRTB. According to Rokob, one of the key learnings has been the importance of working with local advisory firms. “In this region, we have seen a more intensive use of collaboration with third-party audits and implementation support,” he says. This collaboration helps ensure that FRTB solutions are not only aligned but also customised to meet the specific needs of each jurisdiction.

The ability to adapt to changing regulations is crucial. “FRTB requirements continue to evolve,” notes Rokob, “and our solutions are designed with modularity in mind.” This modular approach allows banks to implement changes in specific components of the FRTB solution as needed, ensuring they remain aligned as regulations adjust over time. For instance, while some banks might prioritise internal models approval now, others may focus on enhancing their standardised approach, knowing that future regulatory adjustments could require a shift in focus.

This adaptability is particularly beneficial for banks in regions where cloud adoption remains a challenge. Ho elaborates on the flexibility: “For markets where data sovereignty and local control are paramount, MSCI’s local on-premises solution ensures alignment with regulations that restrict data from leaving the clients’ premises.” 

In addition to offering adaptable deployment options, MSCI’s extensive FRTB solution includes risk factor data that can be tailored to meet client-specific needs.

“Banks can either use our classification of time series data or override it with their own, providing the flexibility to cater to individual business lines and group-level consistency,” says Ho. “Moreover, even clients who have already implemented a solution are periodically rechecking it.”

“The evolving nature of their business lines, the global markets and the FRTB landscape mean that regular recalibration is necessary,” he says. “Clients are revisiting their solutions to ensure they remain aligned with regulatory updates and their changing operational needs.”
 

Conclusion

With Apac FRTB deadlines approaching, markets that have already implemented the framework offer useful guidance for overcoming challenges. From addressing data accuracy and regulatory nuances to offering flexible deployment options, MSCI’s experience provides invaluable insights for banks in Australia, Malaysia and Thailand. By leveraging these insights and tailoring their approach to local requirements, banks across Apac could align with FRTB requirements and better position themselves to address future regulatory challenges.

Learn more

Watch the MSCI webinar Time is running out! Navigating FRTB implementation in Asia-Pacific with MSCI analytics solution to gain insights on managing local rules that differ from global standards, and learn from successful FRTB implementation stories across the Apac region.

Sponsored content