Banks must take crucial steps to automate necessary data
supply processes for regulators to ensure full compliance with
the non-modellable risk factor (NMRF) aspects of the new
Fundamental Review of the Trading Book (FRTB) regulation before
it comes into effect in 2022.
FRTB, released by the Basel Committee on Banking Supervision
in 2014, takes steps to overhaul the minimum capital
requirements for market risk to correct inadequacies within the
existing framework. Within that are the NMRF provisions that
add a test to determine if risk factors meet certain criteria,
and make them non-modellable.
Banks have to perform NMRF tests for every risk factor to
prove their eligibility. They are required to show that each
risk factor is supported by a sufficient set of real prices -
the real price is defined as a value that has at least 24
observations in the previous 12-month period with no more than