FRTB establishes strict criteria for determining risk factor modellability and introduces significant capital charges for non-modellable risk factors (NMRFs). The FRTB Modellability Service helps banks satisfy the requirements and avoid punitive capital charges by transforming raw market data into compliant risk factors.
The service is comprised of two distinct products:
- Markit Risk Factor Utility (RFU), a cloud-based risk factor modelling environment
- Markit FRTB Data Service, a repository of transaction data and other FRTB-related data
As part of the FRTB Modellability Service, the RFU is prepopulated with transaction data from the FRTB Data Service. Banks have the option of supplementing this data with proprietary and third-party data.
The FRTB Modellability Service supports the derivation of modellable risk factors (MRFs) and NMRFs by counting transaction observations and assigning transactions to buckets of risk factors of varying size. It reduces the number of capital-intensive NMRFs by proving modellability.
Reports produced by the FRTB Modellability Service can be leveraged by downstream systems, including IHS Markit’s FRTB Scenario Service, to generate FRTB-compliant scenarios.