Question 1

What are the strategic implications of FRTB regulation for our bank and how does ADVISORI support effective management of these implications?

Accepted Answer

The Fundamental Review of the Trading Book (FRTB) goes far beyond a technical compliance exercise – it represents a fundamental shift in market risk management with significant strategic implications for your institution. For the C-suite, this means not only meeting regulatory requirements, but rethinking and optimally positioning the trading book strategy.🔍 Strategic dimensions of FRTB implementation:• Capital allocation and efficiency: The significantly higher capital requirements (often 40–60% more than under Basel 2.5) require a fundamental reassessment and optimization of your trading activities to maximize capital efficiency.• Business model transformation: The reclassification of positions between the trading book and banking book, as well as the review of trading book boundaries, offers the opportunity to strategically adapt and optimize your business model.• Competitive positioning: Institutions that implement FRTB early and efficiently can secure significant competitive advantages, while others struggle with higher capital costs or are forced to restrict business areas.• Technological transformation: The requirements for data quality, computing power, and risk modeling offer the opportunity to fundamentally modernize your IT infrastructure and prepare it for future regulatory challenges.🛡️ The ADVISORI approach to strategic FRTB success:• Comprehensive impact analysis: We assess not only the regulatory gaps, but precisely quantify the business impact on capital, liquidity, profitability, and competitive position.• Strategic options analysis: Development of various implementation scenarios (from the standardized approach to the IMA) with a clear cost-benefit assessment as a decision-making basis for the C-suite.• Integrated transformation approach: Synchronization of FRTB implementation with other strategic initiatives (e.g., digitalization, data management) for maximum synergies and cost efficiency.• Stakeholder management: Support for targeted communication of the FRTB strategy to supervisory authorities, investors, and internal stakeholders.

Question 2

How can we use FRTB implementation to not only ensure compliance but also achieve a competitive advantage and optimize our capital efficiency?

Accepted Answer

The Fundamental Review of the Trading Book (FRTB) represents not only a regulatory obligation for forward-thinking institutions, but a unique opportunity to strengthen their market position and significantly improve capital efficiency. For the C-suite, this means thinking beyond pure compliance and using FRTB as a strategic catalyst.💡 Strategic potential for superior capital efficiency:• Portfolio optimization and hedging strategies: Through advanced FRTB-compliant modeling, you can recalibrate your trading strategies to minimize capital requirements without compromising risk-return profiles.• Trading desk reorganization: The desk structure required under FRTB enables a strategic realignment that not only meets regulatory requirements but also eliminates operational inefficiencies and creates synergies.• Differentiated product strategies: A detailed analysis of the FRTB impact on various product classes enables strategic focus on capital-efficient instruments and the redesign or reduction of capital-intensive products.• Pricing advantages: An early and deep understanding of FRTB capital costs enables more competitive pricing through more precise incorporation of capital costs, while competitors may have to work with flat-rate surcharges.🚀 The ADVISORI approach to competitive differentiation:• Capital optimization models: We develop sophisticated simulation models that analyze various trading strategies and their capital implications under FRTB to identify optimal scenarios.• Strategic model selection: Support for the decision between the Standardized Approach (SA) and the Internal Models Approach (IMA) at desk level, based on a rigorous cost-benefit analysis.• Competitive benchmarking: Continuous analysis of industry trends and peer group strategies to assess your relative position and identify new market opportunities.• Implementation acceleration: Our proven methods and tools enable faster time-to-compliance, giving you a first-mover advantage while competitors are still grappling with fundamental implementation issues.

Question 3

What governance and operating models does ADVISORI recommend for sustainable FRTB compliance that meets both regulatory requirements and ensures operational efficiency?

Accepted Answer

Sustainable compliance with FRTB requirements demands more than just initial implementation – it requires a robust, future-proof governance and operating model. For the C-suite, the challenge is to find the right balance between regulatory compliance, operational efficiency, and strategic flexibility.🔄 Key elements of a successful FRTB governance model:• Integrated risk governance: Establishing a comprehensive framework that seamlessly integrates FRTB compliance into existing risk management structures and defines clear responsibilities at all levels.• Dynamic trading book governance: Implementation of a robust process for the continuous review and monitoring of trading book/banking book boundaries in accordance with the strict FRTB criteria.• Model risk management: Development of a comprehensive framework for the validation, monitoring, and continuous improvement of FRTB models, particularly for institutions pursuing the IMA approach.• Data quality management: Establishment of an end-to-end data management system that ensures the high requirements for data quality, granularity, and availability under FRTB.⚙️ Efficient operating models for FRTB excellence:• Automation potential: Identification and implementation of automation opportunities in the computationally intensive FRTB processes to reduce operational costs and increase reliability.• Centralized vs. decentralized structures: Development of an optimal balance between central control functions and decentralized implementation in the trading units.• Continuous improvement cycle: Establishment of a structured process for the regular review and optimization of FRTB implementation to respond to new regulatory developments and market changes.• Knowledge base and competency development: Building internal expertise through targeted training and knowledge transfer to reduce long-term dependence on external consultants.🛠️ ADVISORI's proven implementation approach:• Tailored governance blueprints: We develop specific governance models that are optimally aligned with your organizational structure, risk culture, and strategic priorities.• Technology-supported operating models: Integration of modern technologies (cloud computing, AI/ML, process automation) into your FRTB operations for maximum efficiency.• Change management support: Accompanying the cultural and organizational change that is essential for a successful FRTB implementation.• Regulatory relationship management: Support for proactive communication with supervisory authorities and preparation for regulatory reviews.

Question 4

How does ADVISORI support the integration of FRTB into our existing risk infrastructure and what ROI can we expect from different implementation strategies?

Accepted Answer

Integrating FRTB requirements into your existing risk infrastructure represents a complex but strategically important investment decision. For the C-suite, it is essential to understand the return on investment of various implementation approaches and to make an informed decision between short-term compliance and long-term strategic transformation.💼 ROI drivers of various FRTB implementation strategies:• Minimal compliance approach: Focus on meeting minimum requirements through the Standardized Approach (SA) with limited infrastructure investment – lower initial costs, but higher ongoing capital burden and limited strategic flexibility.• Selective IMA approach: Application of the Internal Models Approach for selected trading desks with significant capital optimization potential – moderate investment with targeted capital reduction for relevant portfolios.• Transformative approach: Comprehensive modernization of the risk infrastructure with IMA implementation and integration into an enterprise-wide data and analytics platform – higher initial investment, but significant long-term capital savings and strategic competitive advantages.• Hybrid cloud strategy: Use of cloud-based solutions for the computationally intensive FRTB processes – optimized cost structure by converting capital expenditure into operational costs and increased scalability.📊 Quantifying the value of FRTB investment:• Capital savings potential: Depending on the portfolio and modeling approach, advanced FRTB implementations can reduce capital requirements by 15–30% compared to the standardized approach – with direct impact on profitability and competitiveness.• Operational efficiency gains: Automated and integrated FRTB processes can reduce manual effort by up to 40% while simultaneously improving accuracy and reliability.• Strategic flexibility benefits: An advanced FRTB infrastructure enables faster responses to market changes and new business opportunities, as well as more agile adaptation to future regulatory developments.• Reputational and compliance security: Minimizing the risk of regulatory penalties, capital surcharges, or trading restrictions through robust FRTB compliance.🧩 ADVISORI's integration approach for maximum ROI:• Comprehensive infrastructure assessment: Detailed analysis of your existing risk infrastructure to identify synergy potential and avoid redundancies.• Modular implementation strategy: Prioritization of measures with the highest ROI and phased expansion in line with your strategic priorities and budgetary possibilities.• Technology partner ecosystem: Access to our network of specialized technology providers for FRTB solutions that are optimally aligned with your specific requirements.• Continuous value tracking: Implementation of KPIs and monitoring tools that continuously measure the realized value of your FRTB investments and identify optimization potential.

Question 5

How does FRTB affect our global trading strategy and what approaches does ADVISORI recommend for different jurisdictions?

Accepted Answer

The Fundamental Review of the Trading Book (FRTB) operates as a global framework with regional variations, creating particular challenges but also strategic opportunities for internationally active institutions. For the C-suite, this has far-reaching implications for global trading strategy and optimal positioning in various markets.🌎 Regional FRTB complexity and strategic implications:• Implementation timelines: The phased introduction of FRTB regulations (EU, USA, Asia) enables strategic prioritization of implementation by market and creates temporal arbitrage opportunities.• Regulatory fragmentation: Despite the Basel framework, significant regional differences exist in the interpretation and implementation of FRTB, requiring a differentiated market and product strategy.• Business relocation potential: The different capital requirements across jurisdictions open up opportunities for the strategic relocation of trading activities to optimize capital.• Competitive dynamics: Institutions that skillfully navigate the global FRTB landscape can achieve regional competitive advantages and gain market share in less well-prepared markets.🧭 ADVISORI's global implementation approach:• Comprehensive jurisdiction analysis: We provide a thorough assessment of FRTB requirements in all markets relevant to you and identify deviations and optimization potential.• Coordinated implementation strategy: Development of a globally coherent but locally adapted implementation plan that takes regulatory differences into account and maximizes synergies.• Global operating model: Design of a centralized FRTB governance structure with local adaptations that creates an optimal balance between global consistency and local compliance.• Strategic repositioning: Support for the reassessment of your global market presence and product range, taking into account the FRTB-induced capital burden in various regions.🔗 Synergies with other global regulatory initiatives:• Integration with BCBS 239 and other risk data aggregation projects to create a unified global data architecture.• Harmonization with other market risk regulations such as SA-CCR and CVA risk requirements for efficient overall implementation.• Alignment with ESG risk management requirements, which are increasingly coming into focus for global supervisory authorities.

Question 6

What technological innovations does ADVISORI recommend to manage the computational intensity of FRTB requirements while ensuring cost efficiency?

Accepted Answer

The Fundamental Review of the Trading Book (FRTB) places unprecedented demands on the computing power and data processing capabilities of financial institutions. For the C-suite, this gives rise to fundamental decisions regarding technology investments that have strategic significance far beyond FRTB and influence the digital transformation of risk management as a whole.⚡ Technological challenges and innovation potential:• Exponential computing requirements: FRTB calculations – in particular the Expected Shortfall methodology and NMRF stress tests – require up to a 100-fold increase in computing power compared to previous market risk systems.• Data integration complexity: The granular data requirements for historical time series, risk factors, and sensitivities require a fundamental redesign of the data architecture.• Near-real-time requirements: FRTB reporting timelines and the need for timely capital impact analyses for trading activities place high demands on processing speed.• Budgetary constraints: The implementation of advanced technologies must be weighed against budgetary limitations, requiring innovative solution approaches.🚀 Innovative technology solutions from ADVISORI:• Cloud-native FRTB architectures: Use of scalable cloud infrastructures that provide computing capacity on demand and convert fixed costs into variable costs.• High-performance computing (HPC): Implementation of GPU-accelerated computing environments specifically optimized for the parallelizable FRTB algorithms, offering a 20–50-fold acceleration compared to conventional CPU-based systems.• Advanced data processing technologies: Use of in-memory databases and streaming analytics for real-time processing of large data volumes and integration of heterogeneous data sources.• AI/ML-supported optimization: Application of machine learning for intelligent approximations, risk factor reduction techniques, and proxy modeling to optimize computational efficiency.💰 Investment strategies for maximum ROI:• Modular platform approach: Development of a flexible, scalable FRTB technology platform that can be implemented incrementally while simultaneously supporting other regulatory requirements.• Build-vs-buy analysis: Careful evaluation of options between in-house development, purchase of specialized solutions, and hybrid approaches based on your specific requirements and existing investments.• Vendor management strategy: Strategic partnerships with specialized FinTech providers that can supply innovative FRTB solution components to complement internal resources.• Synergistic technology investments: Prioritization of technologies that both meet FRTB requirements and offer broader strategic benefits for your digital transformation.

Question 7

How do we navigate the transition from the Standardized Approach to the Internal Models Approach and what steps does ADVISORI recommend for a successful model approval?

Accepted Answer

The decision between the Standardized Approach (SA) and the Internal Models Approach (IMA) under FRTB represents a strategic turning point for your institution. For the C-suite, this is not merely a technical modeling question, but a fundamental decision with significant implications for capital efficiency, competitiveness, and strategic flexibility.

🧮 Strategic dimensions of the SA-IMA decision:

• Capital implications: Depending on the portfolio, the IMA can enable capital savings of 20–40% compared to the SA, but with considerably higher implementation and operating costs.

• Desk-selective approach: FRTB allows a differentiated application of SA and IMA at trading desk level, enabling an optimized, risk-based model strategy.

• Time dimension: Implementing a full IMA requires 2–

3 years and should begin with a phased migration from the SA, prioritizing desks with the highest capital optimization potential.

• Regulatory risk: The strict requirements for model approval and the P&L Attribution Tests (PLAT) require careful preparation to avoid reclassification to the SA.

🛣 ️ ADVISORI's roadmap for a successful IMA implementation:

• Strategic desk prioritization: Detailed cost-benefit analysis for each trading desk to identify those with the highest potential for capital savings through the IMA.

• Pre-application assessment: Comprehensive evaluation of your modeling capabilities, data quality, and governance structures to identify and address gaps at an early stage.

• Optimized test environment: Implementation of a robust test infrastructure for PLAT and backtesting that enables continuous monitoring and rapid adjustments.

• Regulatory engagement: Early and transparent communication with supervisory authorities to understand their expectations and incorporate them into the implementation strategy.

📋 Success factors for model approval:

• Robust model risk governance: Establishment of a comprehensive framework for the development, validation, and continuous monitoring of FRTB models in accordance with regulatory expectations.

• Non-Modellable Risk Factors (NMRF) management: Development of an effective strategy for the identification, quantification, and minimization of NMRFs, which can have a significant impact on capital requirements.

• Data quality management: Implementation of an end-to-end process to ensure the quality, consistency, and auditability of all data used for FRTB modeling.

• Competency building: Investment in specialized professionals and training of existing teams in the complex methodological and technical aspects of FRTB modeling.

Question 8

How can we align FRTB implementation with our ESG objectives and what added value does ADVISORI offer in this area?

Accepted Answer

Integrating FRTB compliance with ESG objectives represents a forward-looking strategy that connects regulatory requirements with sustainability aspects. For the C-suite, this linkage offers the opportunity to leverage compliance investments while simultaneously addressing the growing importance of ESG factors in business strategy.🌱 Synergy potential between FRTB and ESG:• Integrated risk perspective: The improvements to risk modeling required for FRTB can be extended to also capture climate-related risks and ESG factors, which are increasingly coming into regulatory focus.• Data infrastructure synergies: The investments in data management and analytics required for FRTB can simultaneously support the capture and processing of ESG data needed for disclosure obligations and risk management.• Extended scenario analyses: The stress testing capabilities developed for FRTB can be extended to climate stress scenarios to quantify the impact of climate risks on the trading book.• Sustainability-oriented product innovation: The reassessment of the product portfolio prompted by FRTB provides the opportunity to develop sustainable financial products that are both capital-efficient under FRTB and meet ESG requirements.🔄 Integrating FRTB into your ESG transformation:• ESG risk-sensitive capital allocation: Development of frameworks that link FRTB capital costs with ESG risk profiles to promote sustainability-oriented capital allocation.• Climate-sensitive market risk assessment: Extension of FRTB risk models to include climate-related factors and transition risks that can influence the market risk profile.• Sustainable trading book strategy: Use of the FRTB-induced portfolio restructuring to strategically align the trading book with ESG criteria and reduce exposure to carbon-intensive sectors.• Integrated reporting: Integration of FRTB and ESG reporting for a coherent risk picture that covers both regulatory and sustainability-related dimensions.🛠️ ADVISORI's unique added value:• Interdisciplinary expertise: Our team combines in-depth knowledge of market risk regulations, FRTB implementation, and sustainable finance to develop comprehensive solutions.• Innovative methodology development: We have pioneered the integration of climate risks into market risk management frameworks and offer proven approaches for FRTB-ESG integration.• Regulatory foresight: We anticipate the convergence of prudential and ESG regulation and prepare your organization for upcoming requirements at the intersection of these areas.• Transformative advisory: Beyond technical solutions, we support you in strategically positioning your institution as a leader in sustainable risk management.

Question 9

How can we use FRTB implementation to modernize our entire risk management infrastructure and what transformative approaches does ADVISORI recommend?

Accepted Answer

The Fundamental Review of the Trading Book (FRTB) represents not only a regulatory challenge, but also a strategic opportunity for the comprehensive modernization of your risk management infrastructure. For the C-suite, this means using FRTB as a catalyst for a broader transformation that goes far beyond compliance requirements.🔄 Transformative potential through FRTB:• Modernization of data infrastructure: The granular data requirements of FRTB provide the impetus to establish a future-proof, flexible data architecture that can also be used for other regulatory and business requirements.• Front-to-risk integration: The alignment requirements between the front office and risk models enable closer integration of trading and risk systems, leading to more efficient processes and better decision-making.• Automation and process optimization: The complexity of FRTB calculations requires a high degree of automation, which can serve as a blueprint for process optimization in other risk areas.• Competency building and cultural change: The new skills and working methods required for FRTB can catalyze a broader cultural shift toward a data-driven, agile risk organization.📊 Integrated risk management architecture:• Risk data aggregation: Creation of a unified platform for market, credit, and operational risk data that enables a consistent, granular view of all risk types.• Unified risk modeling platform: Development of a flexible, scalable infrastructure for various risk models that supports both current and future regulatory requirements.• Comprehensive stress testing framework: Integration of FRTB-specific stress tests into an enterprise-wide stress testing framework covering various risk types and scenarios.• Integrated reporting and analytics: Creation of a unified platform for regulatory and management reporting that provides real-time analyses and self-service functions for various stakeholders.🛠️ ADVISORI's transformative implementation approach:• Target operating model design: Development of a future-proof operating model for risk management that integrates FRTB requirements while promoting organizational efficiency and agility.• Technology roadmap: Creation of a prioritized, multi-year technology roadmap that synchronizes FRTB requirements with other strategic initiatives and unlocks maximum synergies.• Change management excellence: Support for the planning and implementation of the necessary organizational and cultural change to ensure acceptance and effectiveness of the new risk management infrastructure.• Governance and steering: Establishment of a robust governance framework for the transformation that defines clear responsibilities, decision-making processes, and success measurement.

Question 10

What approaches does ADVISORI recommend for optimizing the trading book/banking book boundary under FRTB and how can we minimize the impact on our business model?

Accepted Answer

The precise definition of the trading book/banking book boundary represents one of the most fundamental and strategically significant aspects of FRTB implementation. For the C-suite, this realignment carries both significant risks and opportunities for optimizing the business model and capital efficiency.🔍 Strategic dimensions of the trading book/banking book boundary:• Business model implications: The strict separation and more stringent reclassification rules under FRTB can restrict the flexibility of certain business areas and require a reassessment of your product strategy and positioning.• Capital efficiency potential: A well-considered allocation of positions between the trading book and banking book can significantly reduce the overall capital burden, particularly for positions with different capital requirements under the respective regulatory frameworks.• Organizational challenges: The new governance requirements for the trading book/banking book boundary require adjustments to processes, responsibilities, and control mechanisms that reach deep into the organizational structure.• Regulatory risk: Inadequately documented or inconsistent allocation criteria can lead to supervisory measures, including forced reclassifications with potentially significant capital implications.⚖️ ADVISORI's optimization approach for the trading book/banking book boundary:• Strategic portfolio analysis: Detailed assessment of your entire position and product universe with regard to optimal allocation under FRTB, based on capital implications, business strategy, and operational requirements.• Robust governance framework: Development of a comprehensive governance framework for the trading book/banking book boundary that defines clear decision criteria, responsibilities, and documentation standards.• Allocation criteria optimization: Precise definition and documentation of trading intent criteria that both meet regulatory requirements and allow maximum business flexibility.• Transition management: Development of a structured plan for the migration of positions between the trading book and banking book that minimizes potential capital and P&L impacts and ensures regulatory acceptance.🛡️ Risk minimization and business model adaptation:• Product strategy adaptation: Redesign of product offerings and trading strategies to take into account the stricter FRTB requirements while maintaining competitiveness.• Organizational realignment: Adjustment of trading and risk management structures to operationally support the clear separation between the trading book and banking book.• System integration: Implementation of robust IT solutions to support the continuous monitoring and documentation of the trading book/banking book boundary and the timely identification of potential reclassification requirements.• Regulatory engagement: Proactive communication with supervisory authorities about your boundary strategy and criteria to obtain early feedback and avoid surprises.

Question 11

How can we optimize the impact of FRTB on our trading strategies and product range and what innovative solutions does ADVISORI offer?

Accepted Answer

The Fundamental Review of the Trading Book (FRTB) will have far-reaching implications for the profitability of various trading strategies and products, requiring a strategic realignment of the trading business. For the C-suite, this presents an opportunity to secure competitive advantages and unlock new market opportunities through proactive adaptation.📈 Strategic realignment of the trading business:• Product portfolio optimization: Systematic analysis of the capital efficiency of various products under FRTB and strategic decisions to expand, redesign, or reduce certain product lines.• Innovative hedging strategies: Development of optimized hedging strategies that take into account the FRTB-specific requirements for risk factor assessment and correlation recognition.• Client franchise transformation: Realignment of the client offering and pricing to reflect the changed capital and operating costs under FRTB while remaining competitive.• Strategic cooperation: Identification of opportunities for cooperation or outsourcing in areas where independent continuation under FRTB is no longer economically attractive.🔍 Product-specific optimization approaches:• Derivatives redesign: Redesign of complex derivative products to reduce NMRF burden and improve modelability without impairing the economic value for clients.• Structured products: Development of FRTB-optimized structured products that enable efficient capital utilization while meeting client requirements.• Exotic products: Strategic review of the exotic product offering with a focus on identifying niches where attractive margins can be achieved despite higher capital requirements.• Market making: Adjustment of market-making strategies to optimize the balance between liquidity provision and capital efficiency under the new FRTB rules.💡 ADVISORI's innovative solution approaches:• AI-supported product optimization: Use of advanced analytics tools to simulate various product designs and their capital implications under FRTB to identify the optimal configuration.• Dynamic capital allocation framework: Development of an intelligent system for real-time optimization of capital allocation between various trading desks and products based on current market conditions and profitability metrics.• Client analytics platform: Implementation of a data-driven platform for analyzing client portfolios and activities to offer tailored, capital-efficient product solutions.• Cross-asset integration: Development of comprehensive cross-asset strategies that maximize diversification benefits under FRTB and ensure an optimal risk-return profile for the overall portfolio.

Question 12

What concrete results can we expect from working with ADVISORI on FRTB implementation and how do we measure success?

Accepted Answer

A partnership with ADVISORI for your FRTB implementation delivers measurable, sustainable results that go far beyond pure regulatory compliance. For the C-suite, it is essential to understand the concrete added value of this collaboration and to measure success using clearly defined metrics.🎯 Concrete results of an ADVISORI partnership:• Capital optimization: Demonstrable reduction of FRTB capital requirements by typically 15–30% compared to a standard implementation through optimized modeling, strategic portfolio alignment, and efficient NMRF management.• Accelerated implementation: Reduction of implementation time by an average of 20–30% through proven methods, pre-configured solution components, and experienced specialists with deep regulatory know-how.• Operational efficiency: Establishment of an optimized operating model for FRTB with 25–40% lower ongoing operating costs compared to typical implementations through automation, process optimization, and intelligent resource allocation.• Strategic competitive advantages: Development of innovative, capital-efficient trading strategies and product offerings that strengthen your market position and unlock new business opportunities.📊 Success metrics and KPIs:• Quantitative capital metrics: Measurement of actual capital savings by comparing baseline capital requirements with the optimized outcome; tracking of capital efficiency (RWA/Revenue) at trading desk level.• Implementation efficiency: Assessment of adherence to project milestones, budget performance, and resource utilization compared to industry benchmarks for similar FRTB projects.• Qualitative regulatory metrics: Model approval success rates, supervisory authority feedback, and results of regulatory reviews as indicators of the quality and robustness of the implementation.• Business impact metrics: Measurement of the impact on product profitability, market share in key segments, and client satisfaction before and after FRTB implementation.🔄 ADVISORI's results-focused approach:• Clear objective definition: At the outset of our collaboration, we jointly define precise, measurable objectives and success criteria aligned with your specific strategic priorities.• Continuous value tracking: Implementation of a transparent framework for the ongoing measurement and reporting of achieved values and progress against agreed metrics.• ROI maximization: Prioritization of measures with the highest return on investment and continuous reassessment and adjustment of the strategy based on results achieved.• Knowledge transfer and enablement: Building internal capacities and competencies within your team to ensure sustainable value creation even after project completion.

Question 13

How do we coordinate FRTB implementation with other regulatory initiatives and how does ADVISORI help maximize synergies?

Accepted Answer

The parallel implementation of multiple regulatory initiatives represents a significant management challenge, but also offers considerable synergy potential. For the C-suite, a strategic, coordinated approach is essential to maximize resource efficiency and develop consistent solutions.🔄 Synergy potential with other regulatory initiatives:• BCBS 239 and risk data aggregation: The FRTB data requirements overlap significantly with BCBS 239 principles on risk data aggregation and reporting, enabling an integrated data architecture.• SA-CCR and other market risk regulations: Methodological and data-related overlaps between FRTB and other market risk regulations such as SA-CCR and CVA risk requirements enable coordinated implementation approaches.• Basel IV / CRR III: The broader Basel IV / CRR III reforms, which include FRTB, require a comprehensive view of capital implications and implementation strategies.• ESG risk management: Increasing regulatory requirements for the management of ESG risks offer integration opportunities with the FRTB infrastructure, particularly in the area of scenario analysis and stress tests.📋 Strategic coordination approaches:• Integrated regulatory roadmap: Development of a comprehensive roadmap covering all relevant regulatory initiatives, identifying their dependencies, and enabling optimal sequencing.• Shared governance structures: Establishment of overarching governance mechanisms for regulatory programs that ensure consistency and avoid redundancies.• Technology platform strategy: Implementation of a flexible, modular technology architecture that supports various regulatory requirements and provides a future-proof basis for upcoming regulations.• Centralized data management: Development of a unified data strategy and infrastructure that serves as a single source of truth for various regulatory calculations and reports.🛠️ ADVISORI's comprehensive coordination approach:• Regulatory impact analysis: Comprehensive assessment of the interactions between FRTB and other regulations, identification of dependencies and optimization potential.• Integrated program management: Support for the establishment of a coordinated program management office that orchestrates various regulatory projects and realizes synergies.• Expertise network: Access to our specialized expert network, which offers in-depth knowledge of various regulatory areas and their interdependencies.• Comprehensive solution architecture: Development of an integrated target architecture that efficiently and consistently addresses various regulatory requirements while providing flexibility for future requirements.

Question 14

What critical success factors must we consider in FRTB implementation and how does ADVISORI support our management team in overcoming typical obstacles?

Accepted Answer

Successful implementation of FRTB requirements demands more than just technical know-how – it requires strategic management of complex organizational, technological, and cultural challenges. For the C-suite, understanding the critical success factors and potential obstacles is essential to ensure a smooth and value-creating implementation.🔑 Critical success factors for FRTB implementation:• C-level sponsorship and strategic alignment: Active support and clear strategic direction from senior leadership, positioning FRTB not as a pure compliance exercise but as a strategic transformation.• Cross-functional coordination: Effective collaboration between trading, risk management, IT, finance, and compliance to develop consistent solutions and overcome siloed thinking.• Robust data infrastructure: Establishment of a high-performance, flexible data architecture that meets the strict quality and granularity requirements of FRTB and is scalable for future requirements.• Early regulatory engagement: Proactive dialogue with supervisory authorities to understand their expectations and clarify potential areas of interpretation, particularly for complex modeling aspects.🚧 Typical implementation obstacles and how to overcome them:• Resource and competency bottlenecks: The complexity of FRTB requires specialized know-how that is in limited supply on the market and often competes with other strategic initiatives for resources.• Data availability and quality: Insufficient historical data, particularly for Non-Modellable Risk Factors (NMRFs), can significantly restrict model eligibility and increase capital requirements.• System limitations and performance challenges: Existing risk systems are often not designed for the computationally intensive FRTB requirements, necessitating extensive upgrades or reimplementations.• Cultural resistance and change management: The far-reaching changes in processes, systems, and responsibilities can encounter organizational resistance and require comprehensive change management.🔍 ADVISORI's management support approach:• Executive advisory services: Strategic advisory for the C-suite on positioning FRTB in the broader context of corporate transformation and ensuring the right prioritization and resource allocation.• Change acceleration program: Structured approach to overcoming implementation hurdles through focused interventions, accelerated decision-making, and targeted support at critical bottlenecks.• Expertise injection: Flexible deployment of specialized professionals for critical project phases or components to close competency gaps and promote knowledge transfer.• Leadership coaching: Support for executives in effectively managing complex regulatory programs and developing the necessary leadership competencies for transformative initiatives.

Question 15

How do we design a data architecture that meets FRTB requirements and is also future-proof for further regulatory developments?

Accepted Answer

A robust, forward-looking data architecture is the foundation for a successful FRTB implementation and a strategic investment in long-term regulatory compliance. For the C-suite, this means thinking beyond the immediate FRTB requirements and establishing a data infrastructure that can respond flexibly to future regulatory changes.📊 Core elements of an FRTB-optimized data architecture:• Central market data platform: Establishment of a unified repository for market data with robust quality controls, comprehensive historization, and granular metadata annotation to meet the strict FRTB requirements for data quality and availability.• Flexible data modeling: Implementation of an adaptive data model that covers the specific FRTB requirements and can be flexibly extended for future regulatory changes.• End-to-end data lineage: Continuous traceability and documentation of data flows from source to regulatory report to ensure transparency and meet audit requirements.• High-performance calculation infrastructure: Scalable architecture for computationally intensive FRTB calculations that can efficiently utilize both on-premise and cloud-based resources.🔮 Future-proofing and scalability:• Modular architecture: Development of a component-based architecture that allows individual elements to be updated or replaced without affecting the overall system.• API-first strategy: Implementation of standardized interfaces that enable flexible integration of new data sources, models, or regulatory modules.• Cloud readiness: Preparation for cloud migration or hybrid architectures to improve scalability, flexibility, and cost efficiency, particularly for computationally intensive FRTB processes.• Machine learning capabilities: Integration of infrastructure for advanced analytics and ML models that can be used for data quality improvement, proxying, and optimization.💡 ADVISORI's data architecture approach:• Comprehensive data requirements analysis: Thorough assessment of your current data landscape and identification of gaps with regard to FRTB and potential future requirements.• Target architecture design: Development of a detailed target architecture that takes into account both your specific business requirements and regulatory requirements, and defines clear migration paths.• Vendor evaluation and integration: Support in the selection and integration of technology partners and specialized solutions that fit optimally into your overall architecture.• Data governance framework: Establishment of robust governance structures and processes for the continuous management of data quality, metadata, and regulatory changes.

Question 16

What phases and milestones does a typical FRTB implementation project comprise and how does ADVISORI structure the implementation process?

Accepted Answer

Implementing FRTB requirements is a complex, multi-year undertaking that requires a structured, phased approach. For the C-suite, a clear understanding of the project phases, milestones, and critical paths is essential to ensure the right governance, resource allocation, and strategic alignment.

📋 Typical phases of an FRTB implementation project:

• Phase 1: Strategic planning and impact analysis (3–

6 months)

• Detailed impact analysis on capital, business model, and IT infrastructure

• Development of the overarching implementation strategy and business case

• Definition of the target architecture and operating model

• Fundamental decisions on SA vs. IMA approach at desk level

• Phase 2: Design and preparation phase (6–

9 months)

• Detailed requirements analysis and solution design

• Data analysis and data sourcing strategy, particularly for historical time series

• Definition of trading book/banking book boundaries and trading desk structures

• Preparation of IT infrastructure and vendor selection

• Phase 3: Implementation of the Standardized Approach (SA) (9–

12 months)

• Implementation of SA calculation methodology and processes

• Implementation of data flows and reporting infrastructure

• Testing phase and validation of SA results

• Parallel run and comparison with current capital requirements

• Phase 4: IMA preparation and implementation (if applicable) (12–

18 months)

• Development and calibration of internal models

• Build-out of the P&L Attribution Test infrastructure

• Implementation of the NMRF framework

• Preparation and submission of the model approval application

• Phase 5: Transition and optimization (ongoing) - Continuous improvement of models and processes - Adaptation to regulatory interpretations and market standards - Capital and business optimization based on insights gained - Integration into strategic planning and risk management

🔄 ADVISORI's structured implementation approach:

• Modular project structure: Organization of the overall project into clearly defined, manageable modules with specific deliverables and dependencies that can be implemented in parallel or sequentially.

• Agile delivery model: Combination of agile methods for iterative development components and classic project management for regulatory-critical elements.

• Integrated stage-gate process: Implementation of clear quality control points and decision gates between project phases to identify and address risks at an early stage.

• Continuous value delivery: Focus on the early realization of business value through prioritized implementation of components with high ROI or strategic relevance.

🎯 Critical milestones and decision points:

• Strategic model decision: Determination of the fundamental strategy regarding SA vs. IMA at desk level based on cost-benefit analysis.

• Trading book definition: Finalization and documentation of the trading book/banking book boundary with corresponding governance structures.

• SA go-live readiness: Validation of the SA implementation and readiness for regulatory reporting.

• IMA application submission: Preparation and submission of the formal application for model approval to the supervisory authorities.

• Full compliance: Achievement of full FRTB compliance and integration into the BAU operating model.

Question 17

How can we use FRTB requirements to make risk management more transparent for our shareholders and supervisory board?

Accepted Answer

FRTB implementation offers not only regulatory compliance, but also a strategic opportunity to substantially improve risk transparency and communication toward shareholders, the supervisory board, and other stakeholders. For the C-suite, this means creating value beyond compliance and strengthening confidence in your risk management capabilities.🔍 Strategic benefits of improved risk transparency:• Shareholder confidence: Clear, transparent communication about your FRTB implementation and the associated improvements in market risk management can strengthen investor confidence and potentially have a positive impact on valuation.• Governance effectiveness: Improved risk transparency enables the supervisory board to exercise more effective oversight and make well-informed strategic decisions with regard to risk-return profiles.• Regulatory relationships: Proactive transparency toward supervisory authorities can strengthen regulatory trust and lead to a more constructive dialogue, particularly on complex modeling issues.• Competitive differentiation: Superior risk transparency can serve as a differentiating feature compared to competitors and strengthen the market perception of your institution as a leader in risk management.📊 FRTB-specific transparency potential:• Granular risk insights: The detailed FRTB requirements enable a more precise breakdown of market risks across various dimensions (risk factors, business units, products), which is valuable for strategic decisions.• Forward-looking risk analysis: The advanced stress testing and scenario analysis capabilities under FRTB provide improved insights into potential risks under various market conditions.• Risk-return optimization: FRTB creates a clearer link between risk capital and trading profitability, enabling a more transparent assessment of business performance.• Consistent risk communication: The standardized FRTB metrics promote more consistent, comparable risk communication over time and across various portfolios.🛠️ ADVISORI's approach to improving risk transparency:• Executive dashboard development: Design and implementation of tailored risk dashboards for the management board and supervisory board that link FRTB metrics with strategic KPIs.• Stakeholder-specific reporting: Development of differentiated reporting formats for various stakeholders (investors, regulators, rating agencies) that present relevant FRTB information in an appropriate context.• Narrative development: Support for the development of a clear, consistent communication strategy that embeds FRTB implementation within your broader risk management and business strategy.• Benchmarking and best practices: Insights into industry standards and best practices for risk transparency, based on our experience with leading financial institutions worldwide.

Question 18

What role do data science and artificial intelligence play in optimizing FRTB implementation and how does ADVISORI support this aspect?

Accepted Answer

In the complex world of FRTB implementation, data science and artificial intelligence (AI) can act as transformative catalysts that both improve regulatory compliance and create strategic competitive advantages. For the C-suite, these technologies offer significant opportunities to optimize FRTB implementation while simultaneously laying the groundwork for the digital transformation of risk management.🧠 Strategic application areas of data science and AI in FRTB:• Model optimization and validation: Machine learning algorithms can identify complex patterns in market data and contribute to the improvement of internal models as well as the early detection of model weaknesses.• Data quality management: AI-based methods can significantly improve data quality through automatic detection of anomalies, intelligent gap-filling, and cross-validation of historical market data.• NMRF management: Advanced analytics techniques can assist in the identification, modeling, and minimization of Non-Modellable Risk Factors, one of the most cost-intensive aspects of FRTB.• Computational efficiency: AI methods such as approximation algorithms, dimensionality reduction, and selective recalibration can significantly reduce computation time for complex FRTB calculations.📈 Quantifiable added value through data science:• Capital savings: ML-optimized models and NMRF approaches can reduce capital requirements by an additional 5–15% compared to conventional modeling approaches.• Efficiency gains: Automated, AI-supported processes can reduce the manual effort for data preparation, model testing, and reporting by 30–50%.• Error detection: Early warning systems based on ML algorithms can identify potential model problems or data inconsistencies days or weeks before traditional validation methods.• Scalability: Cloud-based ML platforms enable flexible scaling of computing capacities for complex FRTB calculations without proportional cost increases.🚀 ADVISORI's data science-supported implementation approach:• AI readiness assessment: Evaluation of your current data and analytics capabilities and development of a tailored roadmap for the use of data science in your FRTB implementation.• Proof-of-concept development: Rapid implementation of targeted ML-based solutions for specific FRTB challenges to demonstrate early successes and validate business value.• Integrated analytics platform: Design and implementation of a scalable analytics infrastructure that is seamlessly integrated into your FRTB architecture and supports various data science use cases.• Competency building and knowledge transfer: Training and coaching of your teams in modern data science methods for FRTB to build long-term internal capabilities.

Question 19

How can we preserve agility in the trading book despite the complex FRTB requirements and how does ADVISORI support this?

Accepted Answer

Balancing regulatory compliance with business agility is one of the greatest challenges in FRTB implementation. For the C-suite, the goal is to meet the strict FRTB requirements without impairing the ability to act and innovate in the trading business – a strategic balance that will determine future competitiveness.⚖️ Key dimensions of preserving agility under FRTB:• Strategic flexibility: Despite stricter trading book/banking book boundaries, it is essential to preserve the ability to respond quickly to changing market conditions and business opportunities.• Product innovation: The complex modeling requirements and potentially higher capital costs must not disproportionately restrict the ability to develop innovative trading products.• Timely decision-making: The extensive data and calculation requirements of FRTB must not slow down the trading decision-making process to the point where market opportunities are missed.• Cost efficiency: Compliance costs must be optimized so that they do not excessively burden the profitability of the trading business and create competitive disadvantages.🔍 Agility-preserving strategies under FRTB:• Differentiated desk structure: Strategic redesign of the trading desk structure that enables an optimal balance between regulatory requirements and business flexibility.• Intelligent automation: Implementation of highly automated FRTB processes that minimize manual interventions and enable fast turnaround times for capital and risk calculations.• Pre-deal check capabilities: Development of real-time tools for traders that assess the FRTB capital implications of potential transactions in advance and identify optimal trading strategies.• Agile operating models: Establishment of flexible organizational structures and processes that enable rapid adaptation to changing regulatory interpretations or market conditions.🌟 ADVISORI's approach to preserving agility:• Regulatory-business balance assessment: Detailed analysis of your trading activities and processes to identify areas with the highest risk of agility loss and develop targeted interventions.• Trading ecosystem optimization: Comprehensive optimization of the trading ecosystem (processes, systems, governance) to minimize FRTB-related friction while ensuring compliance.• Forward-looking operating model: Development of a flexible, scalable operating model for the trading business that meets current FRTB requirements and provides adaptability for future regulatory developments.• Innovation enablement: Identification and implementation of innovative technologies and methods that efficiently meet compliance requirements while unlocking new business opportunities.

Question 20

How do we prepare for future developments and adjustments to FRTB regulation and what long-term added value does ADVISORI offer?

Accepted Answer

The Fundamental Review of the Trading Book (FRTB) is not a static regulation, but will – like all complex regulatory frameworks – continuously evolve through technical adjustments, clarifications, and extensions. For the C-suite, it is essential to think beyond the initial implementation and develop an adaptive, future-proof strategy.🔮 Anticipated developments in FRTB regulation:• Technical adjustments: Ongoing calibrations and refinements of technical standards, particularly in areas such as NMRF treatment, P&L Attribution Tests, and correlation assumptions.• Jurisdiction-specific interpretations: Different regional implementations and interpretations by various supervisory authorities, requiring differentiated management.• Integration with ESG requirements: Increasing linkage of market risk regulations with climate risk and ESG requirements, which could bring new dimensional and disclosure obligations.• Technological evolution: Regulatory adaptations to new technologies such as AI, cloud computing, and advanced analytics tools, opening up new possibilities for compliance implementation.🛡️ Strategies for long-term adaptability:• Modular compliance architecture: Development of a flexible, modular FRTB infrastructure that enables rapid adaptation to regulatory changes with minimal disruption.• Proactive regulatory intelligence: Establishment of systematic processes for the early identification of regulatory trends and potential changes to proactively develop adaptation strategies.• Continuous improvement culture: Promotion of an organizational culture that anchors continuous improvement and adaptation as an integral part of risk management.• Collaborative industry participation: Active involvement in industry forums, consultations, and working groups to influence regulatory development and gain early insights.♾️ ADVISORI's long-term added value for your FRTB journey:• Continuous regulatory advisory: Ongoing advisory on regulatory developments, interpretations, and best practices that goes far beyond the initial implementation.• Evolution management: Support for the systematic adaptation of your FRTB infrastructure to new regulatory requirements and technological possibilities.• Knowledge building: Transfer of in-depth regulatory and technical know-how to your teams to build long-term internal capacities for adaptive compliance management.• Strategic partnership: Long-term strategic partnership that goes beyond technical aspects and supports your broader business and strategic objectives in the context of regulatory developments.

Fundamental Review of the Trading Book (FRTB)

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