Regtech Vendors License ISDA Benchmarking for SA Capital Calculations
ISDA has announced that eight technology vendors have licensed the ISDA Standardized Approach, or SA, Benchmarking unit tests to promote consistent implementation of the standardized approach for calculating capital requirements. The eight vendors are ActiveViam, Avera AI (Area 120 at Google), AxiomSL, Calypso, Finastra, FIS, MSCI, and Murex. In 2018, ISDA had launched the Standardized Approach Benchmarking to help firms and regulators achieve consistent and accurate implementation of the standardized approaches for regulatory capital for market risk, known as the Fundamental Review of the Trading Book (FRTB). The exercise is also used to benchmark the use of standardized approaches for counterparty credit risk (SA-CCR) and credit valuation adjustment (CVA) risk and leverages the Common Risk Interchange Format (CRIF) data standards.
So far, 52 banks, including 23 global systemically important banks, and 16 regulators have participated in the benchmarking exercise. The vendor licensing program allows the benefits of Standardized Approach benchmarking to reach smaller entities that use third-party systems for their capital calculations. The ISDA Standardized Approach Benchmarking exercise comprises a unit test to ensure the fitness of implementation of the standardized approach across firms and a hypothetical portfolio exercise to identify, assess, and explain any observed variances and coordinate remediation where necessary. In the same way as vendors have licensed the ISDA Standard Initial Margin Model (ISDA SIMM), they can license the unit test by confirming to ISDA that they have reconciled their technology to the industry standard. The unit test and hypothetical portfolio exercise together form part of an assurance framework for both banks and regulators.
ISDA was selected in the UK to help coordinate the first FRTB-SA benchmarking exercise and run an industry working group, leveraging the capabilities and experience gained in performing similar exercises for the ISDA Standard Initial Margin Model. Participating institutions benefit from a peer-to-peer review of their standardized approach model implementation, enabling them to address possible interpretation issues in the regulatory text. Following interest from other institutions and regulators, ISDA has expanded the scope of this initiative to cover other participating institutions and other capital models, including SA-CCR and SA-CVA.
AxiomSL claims to be one of the first vendors to deliver these complex calculations that are attested to ISDA’s unit test benchmark. The golden source calculations are designed to ensure the credibility of firms’ standardized calculations for FRTB, SA-CCR and CVA, and this initiative will help promote transparency and alignment between regulators and market participants, according to Edward Royan, Head of Global Products at AxiomSL. Additionally, Irina Reitgruber, Product Management, Market Risk at FIS said that "this will provide our customers with additional value and allow our solution to communicate with surrounding IT systems using standard international formats.” FIS had previously licensed the ISDA SIMM unit test and is now participating in the ISDA FRTB-SA unit test.
Related Links
Keywords: International, Banking, Basel, Regulatory Capital, Standardized Approach, SA-CCR, SA-CVA, FRTB, Market Risk, ISDA Benchmarking Tool, Hypothetical Portfolio Exercise, Regtech Vendors, ISDA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Nick Jessop
Scenario modeling expert; risk management specialist; quantitative financial modeler
Previous Article
MAS Emphasizes Need to Review Security Controls Amid COVIDRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.