Sustainable FRTB compliance through continuous monitoring

FRTB Ongoing Compliance

Ongoing adherence to FRTB requirements demands systematic monitoring, regular adjustments, and proactive optimization.

  • 01Continuous monitoring of FRTB compliance
  • 02Proactive adaptation to regulatory changes
  • 03Optimization of capital efficiency in the trading book
  • 04Reduction of compliance risk through systematic processes
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Ongoing FRTB Compliance: Sustainable Monitoring and Optimisation

FRTB implementation does not end at go-live. Ongoing compliance requires systematic model monitoring, regular backtesting and proactive regulatory change management. CRR III significantly tightens requirements for IMA institutions from 2027 — from P&L attribution tests through NMRF monitoring to desk-level approvals. We support banks in not only meeting these requirements but leveraging them for capital efficiency and operational excellence.

Our FRTB Ongoing Compliance service covers the full lifecycle of trading book compliance — from daily model monitoring to strategic adaptation to regulatory developments. We combine deep regulatory knowledge with operational implementation expertise.

2 service modules

Service scope

01

Continuous Model Monitoring

Systematic monitoring and validation of your FRTB risk models to ensure continuous compliance and optimal performance.

  • Automated backtesting procedures and performance monitoring
  • Regular calibration and adjustment of risk models
  • Development of Model Performance Indicators (MPIs)
  • Implementation of alert systems for model deviations
02

Regulatory Change Management

Proactive monitoring and implementation of regulatory changes to ensure continuous FRTB compliance.

  • Monitoring of EBA, BCBS, and national regulatory developments
  • Impact assessment and gap analysis for regulatory updates
  • Development of implementation roadmaps for changes
  • Training and change management for affected teams

5 phases

Our Approach

We work with you to develop a systematic approach to ongoing FRTB compliance that ensures both regulatory certainty and operational efficiency.

  1. Establishing a solid monitoring and governance framework

  2. Implementing automated monitoring and reporting systems

  3. Developing proactive adaptation mechanisms for regulatory changes

  4. Continuous optimization of processes and systems

  5. Regular review and adjustment of the compliance strategy

Your contact

Melanie Düring

Head of Risk Management

+49 69 913 113-01 info@advisori.de
FRTB Ongoing Compliance is a continuous process that requires strategic foresight and operational excellence. With our support, banks can not only ensure regulatory certainty but also sustainably optimize their capital efficiency.
ADVISORI expert opinion

Why ADVISORI for FRTB Ongoing Compliance

  • 01Experience from over 15 FRTB projects at German and European banks
  • 02Battle-tested monitoring frameworks for IMA and SA institutions
  • 03Direct experience with ECB Targeted Reviews and BaFin examinations
  • 04Regulatory expertise combined with quantitative modelling competence

CRR III / FRTB Timeline

The EU has postponed the FRTB market risk requirements to 1 January 2027. IMA institutions must have established complete backtesting, PLAT and NMRF processes by then. Early preparation secures IMA approval and avoids fallback to the standardised approach.

Further reading

7 QUESTIONS, BRIEFLY ANSWERED

Frequently asked questions about FRTB Ongoing Compliance

What does ongoing FRTB compliance under CRR III involve?

Ongoing FRTB compliance under CRR III involves daily backtesting of expected shortfall models per Art. 325bf, regular P&L attribution tests (PLAT) to validate internal models, NMRF monitoring for non-modellable risk factors, and ongoing desk-level approval processes. Additionally, it includes regulatory change management for new EBA guidelines, national supervisory circulars and BCBS papers. IMA institutions must have these processes fully established by 1 January 2027.

How does daily FRTB backtesting work?

Daily FRTB backtesting compares predicted risk values (VaR and expected shortfall) with actual trading results. Results are classified using the Basel traffic light system: green zone (0‑4 exceptions), yellow zone (5‑9 exceptions) and red zone (10 or more exceptions over 250 trading days). Exceeding thresholds may result in capital add-ons or loss of IMA approval for the affected trading desk.

What happens if a bank fails ongoing FRTB requirements?

Failure to meet ongoing FRTB requirements can lead to several consequences: the affected trading desk may lose IMA approval and must fall back to the less capital-efficient standardised approach (SA). Supervisory authorities can impose capital add-ons, initiate supervisory measures, or increase examination intensity. Additionally, deficiencies in the P&L attribution test or backtesting can trigger a reassessment of the entire model approval by the ECB.

What is the P&L attribution test (PLAT) in the FRTB context?

The P&L attribution test (PLAT) examines whether the internal risk model sufficiently accurately explains the actual profit and loss of the trading desk. It compares the hypothetical P&L (based on the risk model) with the actual P&L. The PLAT uses two metrics: the Spearman correlation coefficient and the Kolmogorov-Smirnov test statistic. Trading desks that fail the PLAT must switch to the standardised approach.

What are non-modellable risk factors (NMRF) and how are they monitored?

Non-modellable risk factors (NMRF) are risk factors for which insufficient real market data exists to reliably model them internally. CRR III requires NMRFs to be separately identified, assessed and capitalised using stress scenarios. Ongoing monitoring includes regular review of data quality and availability, reclassification of risk factors when data conditions change, and calculation of separate capital requirements for NMRFs.

How does ongoing compliance differ between IMA and SA institutions?

IMA institutions (Internal Model Approach) have significantly more extensive ongoing obligations: daily backtesting, quarterly PLAT execution, NMRF monitoring and desk-level approval procedures. SA institutions (Standardised Approach) primarily need to ensure correct application of prescribed risk weights, implement regulatory changes and keep their sensitivity calculations current. Both approaches require regulatory change management when new EBA or supervisory directives are issued.

Which regulatory sources must be monitored for ongoing FRTB compliance?

For ongoing FRTB compliance, the following sources must be systematically monitored: CRR III (particularly Part 3 Title IV Chapters 1a-1b), EBA Regulatory Technical Standards and Guidelines on market risk calculation, the EBA Q&A database for interpretation questions, national supervisory circulars and guidance notes, BCBS papers (particularly d457 and subsequent revisions), and ECB publications on TRIM and Targeted Reviews of Internal Models.