Does the industry have a good understanding of FRTB strategy?
I think when we say data and FRTB we need to be clear about what data means. People tend to kind of focus on the RPOs with the real price observations, which are clearly critical for FRTB but they're definitely not the only type of data that people need to take into account when talking about FRTB. So RPOs definitely one but also reference data and pricing data. Only when you look at all three components of data, only then do you get the whole picture of data in the context of FRTB.
Now the question is whether banks are looking into it in the right angle from the right perspective I would say probably not good enough. Banks have a lot of data in the database, that is clear, whether the data is good enough, whether the quality of the data is good or fit for purpose, whether they have the right reporting mechanisms in place, not so sure. If you look at like Bill Coen, the secretary-general of the Basel Committee complaining about the lack of quality in the data submission password of the QIS process, if you think about all the different jurisdictions or the different regulators complaining about the data quality, if you think about the FCA fines given to quite a few banks in the UK failing to properly report their MiFID transactions, you realize that banks, while they have a lot of data, it doesn't say that they have good quality data or good data governance on how to report the data or how to utilize this data. So, do banks have a good data kind of like approach? Probably not so good and I think they need to distinguish or have a clear understanding that quantity by itself is not enough they need to look at the quality of the data.
What is good quality data in the FRTB context?
So, we touched upon earlier about not relying on the quantity alone, and we need to think about the quality of the data - but what does quality actually mean? Fitness for purpose is what we think about it, but is the data by itself good enough, or how you process the data, how you validate the data, how you normalize the data - this is all part of the whole end-to-end a data quality requirement. If you think about an XD, especially principle for can XD where you need to corroborate your RPOs against your pricing data, this is not something that can be taken lightly and should be treated very very seriously. How to do it what are they kind of like operational burden that is associated with doing this I think that banks, while understanding that there is such an event and they take an XD very seriously, they don't really understand the entire scope or triangulation as we like to call it between the different parts of their bank ecosystem in ensuring that the RPOs are of good quality, that are validated against pricing data, against other data sources to ensure again that it is of good quality and is fit or good enough for the RSVT the risk factor eligibility test that can be used in downstream for proven modellability.
Are banks in a race against time to implement FRTB?
I will answer this but slightly differently. I think what banks are missing now is the importance of timeI mean banks are, I would say, because of the lack of local rulemaking transposing the basel takes into into the local kind of rules, apart from the EU, it kind of creates an atmosphere or the appearance of time but actually banks don't have time. We're hearing time and time again that the requirements are big and there is really not enough time to do all these massive requirements that come with FRTB on the one hand, but on the other when we ask the banks, ok what are the actual meaningful steps that you are taking towards meet mitigating all these requirements?, they say well regulators haven't really given us some clarifications about their open questions, rulemaking is not complete in most of the jurisdictions, therefore we are not really making like substantial steps towards getting our FRTB program running really at the right pace towards completion. And this is something that banks really need to change there get the mindset in the sense that time is not on their side time is of an essence and with the exception of the EU all jurisdictions are talking about meeting the bars of 2022 timeline and if banks want to meet this deadline they need to start now.