Financial institutions are gearing up to comply with Fundamental Review of the Trading Book (FRTB) practices. These new rules require banks to provide evidence of sufficient market liquidity related to market risks and positions in their trading books. And as banks work to meet this objective, many are facing a hard truth: Their trading-risk infrastructures are too underpowered to handle the data volume and processing demands necessary for compliance.
This assessment comes to us in a new white paper from the research firm IDG. In the paper — sponsored by Dell Technologies, Cloudera and Intel — IDG notes that among the necessary technology upgrades are those supporting additional computational and historical data storage capacity, scalable horsepower, continuous monitoring and back-testing.
The most pressing FRTB challenge for financial institutions is the need to overhaul market risk infrastructure technology to dramatically boost scalability and performance, according to the firm. And time is of the essence. The international FRTB regulation, developed by the Basel Committee on Banking Supervision, is now slated to go into effect in January 2023.
“Additional computational and historical data storage capacity is required to process unprecedented volumes of disparate data and accommodate real-time data ingestion,” IDG notes. “At the same time, scalable horsepower is essential for handling an array of complex calculations, from qualitative impact studies that evaluate the best FRTB model to the application of machine learning and artificial intelligence (AI) in complex financial modeling and simulation.”
Most banks are not prepared for the rigors of FRTB compliance, in IDG’s view. The firm says the norm is to maintain separate architectures for risk and financials, including different silos for market data sources, risk factors and pricing models. “This can lead to contradictory and confusing results,” the firm says. “And all the while, front and back offices rely far too much on manual processes, which can trigger inefficiencies and ineffective reporting.”
Particularly troublesome are the sheer volume of data coupled with the extensiveness of the additional calculations required by FRTB. The IDG report cites estimates from Cloudera indicating that FRTB demands roughly a 24x boost in historical data storage and a 30x increase in computational capacity. Other requirements include a centralized and secure single view of risk data; a complete audit trail for data, models, and risk calculations; and a machine learning operations framework that supports regular back testing and required profit-and-loss attribution testing.
Meeting the FRTB challenge
In IDG’s view, the Cloudera, Dell Technologies and Intel partnership is well positioned to help organizations meet the challenges brought by FRTB rules.
Here are some of the ways that this partnership can help financial institutions get ready for what’s next:
- The Cloudera Data Platform (CDP) ingests any type of data from anywhere in real time along with transactional historical information, providing full data lineage. CDP includes Shared Data Experience (SDX), Cloudera’s integrated set of security and governance technologies built on metadata and delivering consistent context across all analytics and public and private clouds.
- The latest Dell EMC infrastructure delivers computing, storage and networking at scale to accommodate the FRTB data surge. In addition to maximum scalability and performance, Dell EMC platforms deliver virtual provisioning for improved capacity utilization, integrated data protection at the storage processor level, and reduced ownership costs.
- The third-generation Intel® Xeon® Scalable processors establish a leap forward in data center agility and scalability, converging computing, storage, memory, networking and security to optimize high-performance data management.
Here’s the bottom line, in the IDG view: “Through their joint effort, Cloudera, Dell, and Intel are developing architectures that ensure optimal performance specific to datacentric workloads such as FRTB.”
To Learn More
For the full story, see the IDG white paper “Financial firms will need major trading risk infrastructure upgrades for FRTB compliance.”
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