As Asia Pacific Banks Ready for FRTB Compliance, Many Aim for IMA Approach

Internal model approach favored by 50 percent of respondents in comprehensive regional survey from Murex

PARIS and SINGAPORE, May 25, 2023—Asia Pacific financial institutions believe that fundamental review of the trading book (FRTB) rules will increase capital requirements significantly, regardless of risk calculation model used, according to a wide-ranging Murex survey of bank readiness ahead of critical upcoming changes.  

However, half of these banks plan to pursue the more risk-sensitive, sophisticated model of compliance—the value at risk-based internal model approach, or IMA.   

"It was surprising that such a high proportion of banks are looking at FRTB as an opportunity to move to the internal model approach” said Murex Risk Management Solutions Manager Tim Clarsen.  

The comprehensive study, released today by Murex—the global leader in trading, risk, and processing solutions for capital markets—delves into 24 Asia Pacific financial institutions’ perception and anticipations regarding FRTB implications. These institutions are headquartered in Australia, Hong Kong, India, Indonesia, Japan, Mainland China, Malaysia, Singapore, South Korea, Taiwan and Thailand. They represent diverse profiles, from local firms to domestic systemically important banks and global systemically important banks.  

The survey was bolstered by Murex’s strong regional presence and growing community of Asia Pacific-based experts, as well as the company’s proven record of FRTB implementations there. 

Murex found these banks face “a kaleidoscope” of contextual specificities, according to Clarsen, including variations in requirements and remaining uncertainty around adoption and implementation timelines of the standard. 

Sixty-three percent of respondents expect a 1.5 to three-fold capital increase when moving to FRTB. This applies to banks using either the SA or IMA method. 

“These banks think is it worthwhile to invest and put in place IMA to reduce the expected capital increase. Many of them use our integrated platform, MX.3. This allows them to share the same market data and analytics for front office and risk. So, they see that implementing IMA will not be excessively challenging in their case,” Clarsen added. 

Persistent regulatory timeline uncertainty is a primary implementation challenge of FRTB in Asia Pacific local jurisdictions, the survey also found. Therefore, the survey findings indicate that starting implementation earlier is a good approach.  

While many banks surveyed are not looking at cloud infrastructure to enable the adoption of SA and IMA risk calculation models, 30 percent of firms are factoring in a hybrid approach. Given the computing capacity of cloud, Murex believes banks should consider hosting their integrated front-to- back-to-risk platforms in a cloud or SaaS environment to provide the computing power to enable—in particular, IMA. 

Read Murex’s comprehensive survey, FRTB in APAC: How Ready are Banks? 

Learn more about MX.3 for FRTB.