Some Australian banks should consider adjusting their business strategy in response to “significant regulatory changes”, according to Wolters Kluwer Financial Services.
In a newly-published white paper entitled ‘Fundamental Review of the Trading Book: Impact on Financial Institutions in Australia.” the firm examines the changes included in the Fundamental Review of the Trading Book (FRTB).
They include the requirement to meet heightened risk and regulatory capital calculation obligations, which may necessitate investing in new, sophisticated IT infrastructure. This will be costly and may force banks to completely re-assess their business plans, the white paper notes.
Wolters Kluwer notes that the FRTB is the latest revision of trading book capital rules by the Basel Committee for Banking Supervision (BCBS) that aims to ultimately reduce global financial risk. It deals with what it considers to be weaknesses in the current design of the regulatory capital framework as it relates to the trading book by applying more rigorous qualification requirements for the trading and banking books, seeking changes in the constitution of both.
Under FRTB rules, banks will need to respond rapidly and accurately to regulators’ enquiries, whether scheduled or ad-hoc. Moreover, in order to optimise their capital under the new rules, they will need to identify all asset classes and trading desks that contribute to capital charge.
All affected portfolios will need to be analysed and optimised according to capital parameters. As such, underlying data must be consistent and IT infrastructure must be sophisticated enough to analyse large amounts of data, yet flexible and fast enough to extract required information for regulators at any time.
“The cost consideration may be the key factor in determining whether some market participants decide to completely overhaul their business strategy, concluding that the new rules are too onerous and compliance is too difficult and costly,” commented Soon Kit Tham, risk specialist at Wolters Kluwer Financial Services and report author.
“Much of what is being proposed in the FRTB could be implemented in 2017. Banks need to start planning and implementation as soon as possible, in order to allow for adequate testing time. Put simply, time is running out.”
The US money market fund reforms came into effect in 2016 and are already dramatically shaping US fund industry with investors flooding out of prime funds and into government securities. While the reforms are similar, they are not the same. GTNews interviews Yeng Bulter, global head of the cash business at State Street Global Advisors on the differences.
There are various ways for financial institutions to benefit from advanced technologies and business models provided by FinTech's. Whether a business' approach is radical or incremental, data management can help a company to increase their return on investment, argues André Casterman, INTIX.
Due to the low interest rate environment and Basel III regulation many corporate treasurers, who may have in the past been very reliant on the banking sector to provide them with cash management solutions, have been forced to explore alternative options as banks have been refusing short dated cash deposits.
As the May 25 deadline for Europe’s General Data Protection Regulation (GDPR) inches closer, many treasurers are being lumped with the task of ensuring their wider company is compliant.