If there is one phenomenon that holds distinctly true is that regulatory requirements are transforming the banking industry—and will do so for years to come. And while regulation is what’s driving the transformation, technology is what’s enabling it. The result is substantial changes and costly investments that firms will either need to embrace or learn to accept. Digitalization, extensibility, scalability and elasticity of systems are becoming central to building the bank of the future.
Which brings us to today. It is now 2017 and we are just about three years from the industry’s most immediate prominent regulatory driver, FRTB, with an impending go-live date of December 31, 2019. While there is some time, the deadline is not far off considering the scale of the changes. So the time to start getting fit for FRTB starts now.
With this in mind, we discuss some key items to think about regarding this transformation in banking and set the groundwork for what needs to be done in 2017 in preparation for FRTB. And because the transformation is larger than FRTB and 2017, we also take the long view and identify key opportunities for the future.
1. Evaluate your current technology infrastructure and be prepared to make technology decisions.
While the technology architectures that exist today in most financial institutions could be considered advanced, it is still the case that technology in banking often lags other sectors, particularly for Tier 2 banks. The point here is that FRTB, from an operational standpoint, will fundamentally change the way banks run their business. This, in turn, will likely require extensive changes to the technology infrastructures needed to support the new regulatory regime. It is estimated there will be about 20 to 30 times growth in data and calculation needs, as well as a necessary shift to a much more dynamic, scalable and agile environment.
To keep your FRTB implementation on track, especially for IMA desks, two key steps will need to be initiated in 2017. Beginning this month through June 2017, the technology decision-making process starts and then, from mid-2017 to mid-2018, the technology changes will need to be implemented and tested. Banks will have to evaluate their existing technology infrastructures and determine the approach they want to take to build a system that can handle the larger volumes of data and calculations needed to be compliant. Ultimately, this depends on the willingness of firms to absorb costs now or later. But one reality to understand is that FRTB changes so much of banks’ workflows that simply patching on a Band-Aid or implementing a short-term fix will not work in the long run, and can simply add to costs when duplicating the functionality for the longer term.
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