Banks must automate NMRF capitalisation under FRTB

Author: John Crabb | Published: 13 Nov 2018

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 a...